"With current legislation and tax laws there is an opportunity for considerable taxation savings by purchasing new overseas property under the umbrella of a UK limited company"

Introduction by by Joe Howard

Joe Howard is the Senior Partner of Howard Mathews LLoyd Accountants UK

Taxation is a hugely complex subject not just in the UK but worldwide. 

Matters become even more complicated once we acquire assets abroad as there are then two arms of the tax man to deal with.

The last ten years has seen taxation becoming more complex within the UK particularly with regards to anti-avoidance provisions and off-shore assets. 

This does not just mean havens such as the Isle Of Man and the Channel Islands and exotic areas such as Bermuda but anything owned by the UK tax payer worldwide. 

The most common of these relate to holiday homes in mainland Europe and particularly Spain. 

In addition to that there are those that have sold up from the UK and retired to sunnier climes.

Many think they have escaped the clutches of the UK tax man. Regrettably this is not always the case.

Many of these individuals do not employ the services of an accountant as all their income tends to be taxed at source, their dealings with solicitors tends to be related to purchase of property and occasionally wills.

Those who are involved in businesses, and deal regularly  with accountants tend to find that there is often a difference between the advice given by the accountant and that given by the solicitors, as most do not want to tread on each others toes.

There has been a great deal of publicity of late concerning inheritance tax and there have been moves by both major parties to reduce the burden of this. 

Unfortunately the latest pre-budget report issued by Mr. Darling served only to confuse the matter further.

Suffice it to say that above the exemption limit most estates will be hit with a 40% tax charge unless steps are taken to alleviate the situation.

With current legislation and tax laws there is an opportunity for considerable taxation savings by purchasing new overseas property under the umbrella of a UK limited company. 

These advantages can also extend to property already owned. 

The major advantages of this are as follows:    

1. The asset becomes UK based and can therefore be dealt with by an individuals normal solicitor and a small amount of input from the companies accountants.  The instructions regarding the shares can be left within the UK and it will not be necessary therefore to have Spanish solicitor or indeed Spanish will. 
   
2. Transfer of the shares and consequently the property and indeed its accessibility can therefore be more or less immediate. Even without a will this transfer will be far speedier than in Spain where it can often take years to transfer ownership to the surviving partner particularly where somebody dies without a will.
   
3. Whilst the value of the property will reflect in the value of the shares for an individual’s estate it may be possible to reduce this under inheritance tax provisions by claiming business property relief thus passing on the asset tax free.  There are obviously conditions related to this which will vary on the individual’s circumstances.
   
4. Family members can become involved with the company by way of directorships and/or share ownership.  Control can still be exercised by members if they make sure that the appropriate structure is in place to safe guard both their own position and indeed the principal asset i.e. the property.

From April 2008 the tax law changes to remove the benefit in kind for owner/directors in relation to property overseas.

• Any expenses related to the property and indeed visits to the property can be paid by the company from loans made to the company by the directors/shareholders. 
  
• This then becomes an asset of the individual and can be passed on at the time of death thus creating additional benefits to the beneficiaries.

In the event of the property being sold the company would be liable for Capital Gains Tax at either 20% or 29% compared with an individuals top rate of tax of 40%. 

Any funds injected into the company i.e. deposit on property, maintenance costs insurance etc could be withdrawn tax free leaving the balance to be distributed either by way of dividend or capital distribution.  Dependant upon the tax payers personal tax circumstances these funds could again be available without any additional taxation liability.

• The property could also be sold by way of sale of the shares but again there could be further tax planning opportunities with distribution of shares amongst members of the family which would impact not only on the Capital Gains Tax liability but also on the Inheritance Tax position.

The above outlines some of the advantages of owing overseas property in a UK registered limited company.  Individual circumstances will dictate the level of savings which will vary.

Clearly however all parties will benefit from cost savings by not needing the following if we take Spain as an example.

1) A Spanish agent to dispose of the property or death a cost which is normally 5%.

2) A Spanish solicitor to compile a Spanish Will.

3) A Spanish solicitor to deal with the estate in Spain.

4) Spanish taxes on death or a sale due to the increase in property value.

5) Increased UK solicitor’s costs in dealing with their counterpart in Spain.

In addition to the above there are the added complications of language and by no means least the time scale of dealing with matters.

To this end the creation of a tax efficient United Kingdom company is a sensible strategy for reducing inheritance taxation on foreign owned properties

Conclusion

Restructuring your property now is a legal, intelligent and very simple process to save a small fortune in future taxes for your heirs.

The Wincham Investment property strategy takes care of everything for you.

We use qualified Lawyers, company formation agents, accountants and business consultants to restructure your property ownership.

You will NEVER lose control of the property, and can rent or sell it as you wish

Apply for your no obligation proposal now