By REBECCA.ELLIS and PASCAL.CREPIN
MON, SEPT 4 2017-theG&BJournal–Today, we consider the impact of holding property assets in Trusts held in the UK.
Changes to the regulatory backdrop mean that the benefits of holding high-value UK property assets in trust structures are no longer what they were.
Many governments in the West, who have severe issues of too much debt and not enough income, have looked to tax to increase their revenue. Successive UK governments have had high-value residential property owned by foreigners in their sights.
The Cost of Property Assets in the UK
Capital Gain Tax
Applied at 28% for all properties held in trust and 18% or 28% for individuals.
Inheritance Tax (IHT)
This is now payable on any UK residential property. Trusts will be charged every 10 years up to a maximum of 6% of the UK property value and where the settlor of the trust retains a benefit there will be a charged 40% on his or her death.
Introduction of Annual Tax on Residential Property (ATED)
This is an annual tax on residential property held by companies. Since 2016, this affects any properties above the value of £500K.
The following options are available:
1) To keep within the structure or to “de-envelope” into personal ownership
The settlor should consider if he or she would like to continue to hold within a trust structure by assessing the advantages of holding the assets in the trust (the goal of an orderly pass of wealth to the next generation) or the disadvantages ( the cost of annual taxes and inheritance tax when the asset is distributed). If they decide to remove the property from the structure, known as de-enveloping and the asset will be within the estate of the settlor/s.
2) Insurance Cover for the IHT Liability
As the changes to trusts have been introduced, several businesses offer insurance options to cover the potential IHT bill. For some trusts or individuals, this option takes the burden of tax off the next generation.
For Investment Properties, there is a planning opportunity that can be used to reinstate many benefits of what the traditional discretionary trust was used for in the past, namely a pension structure called Qualifying Non-Residential Pensions Schemes (QNUPS).
The key benefits of the QNUPS are that it meets the conditions to qualify for statutory exemptions to Capital Gains Tax (CGT) and Inheritance Tax (IHT) and is therefore out of the scope of these new charges.
The majority of QNUPS are offered through the jurisdiction of Malta. The Malta Financial Services Commission have approved a selection of providers who are regulated to provide schemes for international pension benefits.
How do QNUPS work?
Set up under a regulated pension trustee
The scheme allows an income to withdrawn from age 50 years old onward for lifetime
The minimum annual pension distribution must the national minimum wage in the UK (the current level is 1,200 GBP per month)
A lump sum of 30% can be withdrawn
No ATED, CGT, and IHT Charged
A Case Study For An Investment Property Holding Held Within A Trust
A settlor has decided to evaluate his circumstances. He is a non-resident of the UK and lives in Dubai. His current assets are: resident
UK residential property held by a company wholly owned by the trust
Property Value – £2,500,000
Assumed gain of £625,000 if the property was sold
Assumption Yield of 3.5%, rental income value is £93,750
Assumption that on death IHT is chargeable
Benefits and Cost Analysis
Ellis and Crepin are both of POMONA WEALTH, A Personal investment advisor, based in Zurich |REBECCA.ELLIS@POMOMAWEALTH.COM|PASCAL.CREPIN@POMONAWEALTH.COM