Corporate Law and Buy-Outs

/Corporate Law and Buy-Outs

Holding property in the UK through a foreign company: a structure doomed to disappear?

Background 

As for today, individuals who are resident but non-UK domiciled  

[1] (“Non-Dom”) are liable to inheritance tax on their UK assets but not on their non-UK assets. Non-Doms have benefited from such a generous advantage by setting up structures in which to hold an UK residential property indirectly through using an offshore company or trust. 

The above is broadly known as enveloping real estate property and the structure may be as simple as follows: 

Subject “A” was born in Madrid and he is living in London for five years (as a Non-Dom). Two years earlier, he set up a company in Spain, which bought a residential property located in London. Since “A” owns the shares of an offshore company, instead of owning the property itself, he is entitled to avoid IHT liability on death or lifetime gifts as regards the property. 

The Hunting of the Envelope 

The UK government has recently announced an aggressive switch consisting – among other measures – in clearing away most of the tax advantages enjoyed by the Non-Doms using an enveloped structure. These have included a) theintroduction of the Annual Tax on Enveloped Dwelling (ATED); b) the extension of Capital Gains Tax to non-UK residents making disposals of UK residential property; and c) a flat rate (15%) of Stamp Duty Land Tax (SDLT) for corporate purchasers. 

However, the latest reform of all – which is announced to apply from April 2017 – will most probably become the linchpin for the abandonment of the enveloped structures. Namely, we refer to the inclusion of shares in an offshore structure (trust or closed company) owning, directly or indirectly, residential property in the UK as property subject to IHT. Thus, such structures will become no longer valid as such shares no longer be considered as “excluded property” for IHT purposes. 

Taking into account the above example, from April 2017 Subject A estate upon death will include – for IHT purposes – the shares in the Spanish company and consequently the UK residential property. 

Massive De-Envelope 

Upfront, it might seem a good idea to undo the whole corporate structure as this does not reflect any apparent advantage. However, before taking the decision to de-envelope, some questions need to be answered Subject to a case-by-case analysis, some of the questions which should be answered before taking such a decision are the following: 

  • Type of structure: 
  • What structure do you actually have?; 
  • Why did you create this structure?; and 
  • What is the tax regime of the structure? 
  • Assets / Properties: 
  • What are the assets owned by this structure?; 
  • Where are based these assets?; and 
  • What is the market value of these assets? 
  • Alternatives: 
  • What would be the ideal structure considering the new tax changes introduced by the UK government?; 
  • What is the cost of de-enveloping the current structure?; and 
  • What is the cost of continuing as it is now? 

At Fitzwilliam, our dedicated team can assist you in the restructuring or reorganisation of your envelope scheme. Even better, we can advise you in the whole process from Spain, not needing to spend time and money travelling to the UK. Contact us today so that you can obtain a further knowledge of your case and of the different alternatives available to mitigate the effects of the recent tax changes. 

[1] Under English law domicile is the place where the individual has its permanent home, although he does not live there at the moment. 

2017-12-30T16:22:42+00:00 21 September, 2017|

A word of caution is needed when granting a PoA in the UK referring to powers to be exercised in Spain

During the past few months we have witnessed a great deal of legal controversy regarding the validity in Spain of Powers of Attorney (PoA´s) granted before a British Notary Public. Most public registries in Spain (either Land Registry or the Spanish equivalent to the Companies House) have massively rejected PoA´s notarised by British Notaries. Registrars have deemed them as invalid and null.   

The reason for such a stir in the press can be found in the recent ruling issued by the Spanish DGRN (the public body whose rulings are binding for every Notary of Registrar in Spain) stating that Powers of Attorney witnessed by British Notaries are no longer valid in Spain 

If followed to the letter, this ruling would imply that PoA´s granted by British residents should, from now on, be witnessed only before: 

  1. a Spanish Notary Public based in Spain; or 
  1. one of the two Spanish Consuls in the UK (located in London and Edinburgh) 

The DGRN has based this ruling in the fact that British Notaries do not have the equivalent function of Spanish Notaries. Although this has been historically irrelevant, it is undoubted that it now conflicts quite strongly with Spanish latest legislation. Namely, this collides with section 60 of Law 29/2015, which sets out that no public deed should be recognised in Spain unless the same is granted before a person with equal rights and functions as a Spanish Notary, even when the deed has been previously Apostilled. 

At Fitzwilliam we pay careful attention to detail and make sure that, independently of where it is granted, every PoA is drafted with the utmost careso that this risk can be effectively minimised. 

This is possible thanks to our expertise both in English and Spanish legislation, allowing us to instruct British Notaries for notarising Spanish Powers of Attorney validly and in accordance with the DGRN requirements.  

This makes us capable of providing services to our customers more cheaply, quickly and conveniently. 

2018-01-05T11:46:54+00:00 1 September, 2017|