George Osborne, the Chancellor
 Image: Parliamentary copyright

2012 Budget 'Targets' Wealthy and their Property!

There is little doubt that March the 21st won't be fondly remembered by many SCF Clients especially as it is clear that the Chancellor George Osborne is determined to close as many 'traditional' loopholes as possible in his effort to 'balance' the books. However, what is far more worrying from the point of view of UK PLC is that it seems to have been forgotten that being 'fair' is not always in a country's best interest: indeed quite the contrary when the 'targets' are often the international wealth creators who have historically selected the UK as their favoured place to live because of the once many attractive tax benefits of living here. The view of SCF is that there is a real danger of negative fiscal migration/investment away from the UK, which could well see the size of the cake diminish significantly albeit with the remainder being more evenly sliced. It is submitted, that the aim of any government should be to promote growth even when such promotion may not always be fair as the wealthy (domiciled or not) can always and often do move!

The key changes for UK Property Investors & Non-Doms

• Non-Doms annual charge to increase to from £30,000.00 to £50,000.00 per annum
• Properties valued over £2 million subject to a new 7% Stamp Duty
• Properties valued over £2 million bought using 'certain' offshore companies will be subject to a 15% Stamp Duty
• Government to seek to prevent capital gains tax (CGT) avoidance through exchange of shares relating to UK property dispositions
• There is a declared intention to introduce an annual tax on UK properties held by 'certain' offshore companies

Our analysis – General

George Osborne has aggressively targeted UK property investors and wealthy non-domiciled but long-term UK residents; in a manner that would have made the most leftwing Labour Government's proud. In précis, the UK has brought its tax laws into line with France and Spain but fortunately SCF tax planning clients have been prepared structurally for many years and most will have either existing robust defence lines or at least have the ability to upgrade to take account of the changing tax environment.

UK Non-Domiciled but Resident Individuals

"Now before it is too late, is the time to set-up a private interest foundation (PIF)"

As previously predicted, the introduction of the £30,000.00 annual charge for long-term UK resident but non-domiciled individuals was the thin end of the wedge. The key to the Government's true intention became clear when they made it a condition that individuals wishing to continue to benefit from not being taxed on their worldwide non UK remitted assets would nonetheless be required to declare such assets even when paying the old £30k annual charge! Now more than ever, SCF recommends that wealthy non-domiciled individuals (especially those that have so far been outside the net in that they have been resident here for less than 7 out of 9 years) set-up their UK case law* supported private interest foundation (PIF's) as correctly structured they can not only avoid exposure to the new annual £50k charge but prevent disclosure on UK assets. Certainly, now before it is too late, is the time to set-up a private interest foundation (PIF). For more information, please contact an SCF consultant immediately.

UK Property Investments and the use of 'Offshore' Companies

It has long been recognised by SCF that there would eventually be significant restrictions on the use of 'traditional' offshore companies in respect to the acquisition of UK property investments. However, notwithstanding the Chancellors undoubted desire to create UK taxable events for all non-UK based companies, he will run into a significant barrier where such are protected by international law and/or European Union membership. In particular, the Chancellor should be aware that whilst 'traditional' offshore companies such as those based in the Isle of Man or indeed the ubiquitous British Virgin Islands (BVI) may be easy targets such will not be the case with low corporate tax Irish or Cypriot companies, since both are full EU members and specifically any 'discriminatory' tax such as the proposed 15% Stamp Duty Land Tax (SDLT) or annual property tax would be in breach of EU law. In addition, by reference to existing laws in France and Spain what is likely to happen is that there will be a statutory 'black' list of jurisdictions, which would include all 'traditional' tax free havens and very likely non-resident companies but what neither country has managed to prevent is the use of indigenous companies owned by 'legitimate' tax planning jurisdictions with appropriate tax treaty provisions and exchange of information clauses. Certainly, what would be a good idea for many clients would be to transfer ownership into a UK company ready for appropriate re-structuring as to ownership or perhaps to use what is known as the 'continuation' principle to allow the migration of any non-suitable tax haven company to a more suitable low tax company jurisdiction as such should not create a fiscal event as there will have been no change in ultimate beneficial ownership. For now, SCF recommends that all clients owning UK property should immediately contact SCF if they want to avoid these draconian measures.

PIF INFORMATION CLICK HERE

PIF ENQUIRY CLICK HERE & COMPLETE THE FORM

UK PROPERTY ENQUIRY CLICK HERE & COMPLETE THE FORM