Election review needed for UK property structures

Monday 11 May 2015

Local individuals, trustees and companies holding real estate in the UK should review their ownership structure after the UK General Election, according to tax specialists from EY.

Delegates at a half-day seminar on ‘Taxation of Investment in UK Real Estate’ were given insight on the most salient issues in property tax legislation, including the new Capital Gains Tax (CGT) charge, the Annual Tax on Enveloped Dwellings (ATED), planning for non-UK residents and non-domiciled UK residents and the new Diverted Profits Tax (DPT).

“With the recent legislative changes tax is more complex than ever and this trend is likely to continue following the election. The landscape is shifting so frequently that it is no longer possible to set up a ‘structure for life’. Structures need to be monitored just as frequently to keep the pace with the changing law, to both ensure compliance and protect the investor,” said Peter Willey, EY’s Channel Islands Head of Tax.

Mark Lee, EY’s Channel Islands Head of Trust and Private Client, covered the new CGT charge for UK residential property and working with ATED, as well as what effect the election could have on these current property tax legislations.

“The Conservative party has vowed that, if re-elected, it won’t increase income tax, national insurance or VAT before 2020, which suggests further austerity in other areas or the coming of new taxes to follow in the footsteps of CGT for non-UK residents and the recent Diverted Profits Tax. Labour is looking at other measures such as abolishing the UK non-doms regime.

“The increasingly complex rules need to be assessed together. The ATED regime, for example, was put in place to encourage the “de-enveloping” of UK property owned by companies but the additional legislation has, in some cases, made it more attractive to do the opposite,” said Mr Lee.

The event featured talks from several leading practitioners from EY’s London office: Carolyn Steppler; Marion Cane; Georgina West; Sana Azam and Giles Downes, all of whom specialise in different tax aspects of investing in, and developing, real estate.

Mrs Steppler suggested the consideration of business investment relief and principal private residence relief for certain cases and also stressed the situations where holding property via a non-UK company, such as one based in the Channel Islands, could still be beneficial.

“Non-UK residents looking to buy a UK property for personal use to eventually pass on to the next generation should certainly consider holding via a non-UK company,” she said.

Other presentations throughout the event touched on the uncertainty of the Diverted Profits Tax, obtaining a favourable VAT position during property acquisition, planning for Stamp Duty Land Tax (SDLT) charges and optimising capital allowances claims in a property portfolio.

“There are numerous considerations for anyone owning UK residential property and for anyone that is unsure about the current tax position of their structures we would strongly advocate having it assessed by experts,” said Mr Lee.

“Despite the complexity and uncertainty surrounding these rules, the positive news is that there are still significant advantages to owning UK property through trusts and companies based in the Channel Islands. While there is no universal answer, with careful planning and consideration there are ways to maximise efficiency of these structures.”