Andy Lee Marketing Director. Today s Agenda. Tax Planning Issues. Recent Budgets Tax Planning Issues. Changing Shape of UK Tax Environment

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1 Taxation For Landlords 19 th April 2011 Andy Lee Marketing Director UK and Offshore Tax Planning Trust Services Company Administration Founded in directors and 30 employees 1 2 Tax Planning Issues Exit Strategies Succession Planning Risk Management/Asset Protection Influenced by:- Political Risk Economic Uncertainty Today s Agenda Review of current environment Trust planning Asset freezing Incorporation Corporate planning Planning offshore Planning with the family home 3 4 Changing Shape of UK Tax Environment Expats - Over 3 million Britons now live overseas (2 million in the last decade!) Inpats - 6.7m UK residents were born overseas. What is tax avoidance? Implications of 50% Income Tax, and 20% Corporation Tax Furnished holiday lets Recent Budgets Tax Planning Issues Inheritance Tax at 40% Pre Owned Asset Tax since 2005 Trust Tax Changes in 2006 Combined Nil rate bands since 2007 Capital Gains Tax Introduction of 18%/28% rate from June 2010 Entrepreneurs Relief 10% up to 10million 5 6 1

2 Recent Budgets Tax Planning Opportunities Trust Footprints Hold over relief Asset freezing Income or gain? Debt based planning Double dipping Utilise Business/Agricultural Relief Non Residence / Non Domicile planning Trusts and Hold Over Relief CGT deferral at 18%/28% - IHT saved at 40% 325,000 per spouse every 7 years Transfer greater value with a mortgage liability Tax credit for non taxpayers 7 8 Freezer Scheme Freezer Scheme Fixed share reflecting the current value of a company Growth share acquires the future value Gift growth shares to trust CGT/IHT efficient vehicle for growth Repurchase fixed share spending capital! Precaution against loss of future reliefs! Parents Fixed Shares Current Value 1m Trust For Children Growth Shares Family Investment Company 9 10 INCORPORATION RELIEF Background Colin and Diane jointly own several student lets (value 1 million). Colin and Diane busy themselves in the commercial aspects of the properties and negotiate their own reviews, new leases, repairs and up keep, and rental collection. Colin and Diane plan to sell, and may leave the UK in the future. Problem There are significant capital gains in the property values. INCORPORATION RELIEF Solution: Colin and Diane incorporate an offshore company ABC Co. Colin and Diane to transfer the business of property letting to ABCCoinreturnforshares. ABC Co is deemed to acquire the business and assets of the partnership at their current market value. ABC Co may then continue the letting business and decide to sell each property, avoiding capital gains tax and corporation tax

3 THE SALE OF INVESTMENT PROPERTY TAX FREE Non Resident Dividend Strip ABC Co Corporate Trust Planning Investment Flexibility & Protection of Valuable Tax Reliefs ABC Ltd Partnership 1 Million Tax deferral on asset transfer TRUST Tax free Growth Asset Protection Base Cost 300 k Current Value 1m Sell No CGT/CT Dividend 1m No income tax if non resident for only one year! 13 Retention Family benefits IHT benefits Reward Purchase cars Acquire property Pay bonuses Recruitment Exit strategy/ succession Share incentives Loyalty benefits 14 Corporate Trust Planning The Big Four! EBT - Employee Benefit Trust EFURBS Employer Funded Retirement Benefit Schemes QROPS Qualified Recognised Overseas Pension Scheme QNUPS Qualifying Non-UK Pension Scheme EBT Update Disguised Remuneration proposals Income tax implications of loans Relevant arrangement Relevant step Earmarking Future Opportunities Non Residency Leaving the UK Access to funds? Offshore tax free investment roll up Shelter assets of low value Estate planning Asset protection and shares Growing expatriate community 1/5 people 50+ moving abroad! 368,000 left in Offshore centres resting place for assets. Tax deferred becomes tax saved. Gap Planning Pension migration/qrops Corporate migration Yahoo/Shell/Experian/WPP HSBC/Diageo?

4 Qualifying Recognised Overseas Pension Scheme (QROPS) Non Domicile Planning Key Points: Wealth preservation and succession. No annuity purchase requirement drawdown for life Self insured annuity? IHT protection Transfers no longer require residence in the country of receipt. Is UK still a tax haven? no CGT or IHT? Plan offshore Excluded before becoming deemed domicile Introduction of 30,000 tax levy in April 2008 join the Remittance Club Bond wrapper for income tax deferral Non Domicile Planning Non Doms spend a total of more that 19bn in Britain each year. Contribute 8.3bn in taxes - 4.5bn in income taxand 3.75bninVATandSDLT.ExclCGTand IHT. In recent years, the number of non doms has been growing at about 4% annually, however it is slowing quickly. At least 2% have left Britain. Income Tax Mitigation Venture Capital Trust 30% relief / 200,000 limit Enterprise Investment Scheme 30% relief / 1m limit Income Tax Loss schemes such as Film Investment Research and development expense - specifically green technology SOURCE: CASS BUSINESS SCHOOL Copyright 2009 Fortress Management Services Limited Trusts and their advantages Control and Certainty Inheritance Tax (IHT) Savings Holdover Relief Delaying receipt of Capital to Children Privacy and Asset Protection Continuity of Ownership Offshore Gross Rollup Asset Protection D runs P Limited as a clothing supplier D wants to purchase student lets as an investment vehicle However, D is concerned about protecting his assets if P Limited gets into financial difficulty! D creates a trust for the benefit of his family with independent trustees in the IOM The trust creates IOM Co, an offshore company to acquire property

5 Asset Protection Family Limited Partnership A Trust Alternative Trust General Partner Husband & Wife Limited Partners Child 1 Child 2 Grandchild 40% 40% 20% IOM Co Family Limited Partnership Cash Investments Will Planning Certainty Asset Protection (Long term care fees!) IOU Planning Shelter Future Asset Growth Immediate Post-death Trust Bypass Trust Planning with The Family Home Development Investment Incorporation Relief IHT CGT Freezer Schemes Planning for New Purchases Planning With The Family Home IHT Debt Scheme Wills maximise nil rate bands and trust opportunities. Gift and pay rent Trade down release equity Debt based planning Tax mitigation schemes Sale of an individual s asset to spouse Purchase price is lent by the individual to spouse Debt payable to chosen beneficiaries (children) as potentially exempt transfer

6 IHT Planning Family Home at Undervalue Value 800,000 Owners Sale at undervalue at 500,000 to Trust IHT Saving 200, ,000 Sale proceeds Trust for children Rent to pay Loan interest Indefinite Deferral Personal Bond Route Pay nominal initial premium. 15% deemed gain charge only on initial premium. Tax charge only arises on surrender. Assets of bond held in private company. 500,000 Loan Indefinite Deferral Personal Bond Route Offshore Trust Offshore Company 1 Bond Offshore Company 2 Company Owned Offshore Bonds Convert income taxed at 50% into CGT at 28% by selling the company. Offshore Company Offshore Bond INHERITANCE TAX AN IMMEDIATE SAVING Trust Purchase Excluded Background Mrs sg is suk resident esde tand is sof advanced a years. Mrs G has an estate of 1,525,000 and wishes to eliminate her estate s exposure to IHT immediately. INHERITANCE TAX AN IMMEDIATE SAVING Trust Purchase Excluded The Solution Mr R, non domiciled and non resident, has settled an offshore trust with offshore trustees. The trust fund is 750,000. Mrs G s assets (other than her home and cash) will trigger a charge to Capital Gains Tax, if realised. Mrs G borrows 750,000 from a bank secured upon the assets in her estate. Mrs G may then purchase Mr R s trust, for say 825,000 which includes a purchase premium

7 Will Planning - Double Dip on Death The proposal for double relief would be along the following lines. Spouse 1 ( H ) in his will leaves business/agricultural property (plus the nil rate band sum) to a discretionary trust in favour of the family including Spouse 2 ( W ). On H s death, business property relief/agricultural property relief is obtained for the first time. The capital gains tax death exemption and market value uplift also applies for the first time. Will Planning H leaves W his Investment assets or she owns such assets in her own right. W purchases at arm s length (e.g. under a market value option granted to her in H s Hs will), the business/agricultural assets from the trustees. On W s death after two years from the purchase, her estate should also be eligible for the relief, i.e. for the second time! Likewise the capital gains tax death exemption and market value uplift should apply Example Will Planning Mr Planter owns the following assets: Shares and deposits 1,325,000 A 30 per cent holding in Adam Planter Ltd which manufactures widgets - the Shares are valued at: 400,000 Planter Farm which Mr Planter has owned and farmed for many years - value at: 600,000 2,325,000 In his will, Mr Planter leaves the 30 per cent holding in Adam Planter Ltd and Planter Farm to a discretionary trust in favour of his widow, children and grandchildren. He also leaves 325,000 of assets in shares and deposits in the trust. The remaining (Investment) assets he leaves to his widow coupled with an option for her to buy the business and agricultural assets from the trust at market value. The effect on Mr Planter s death is that there is no inheritance tax, capital gains tax exemption and market value uplift. Mrs Planter then exercises the option to buy the shares in Adam Planter Ltd and also Planter Farm Disclaimer Taxation For Landlords 19 th April 2011 Andy Lee Marketing Director Tel: Mobile: Fax: Direct Dial: andy.lee@offshore-iom.com This presentation is intended to provide general financial information on matters of interest, and is not intended for use without professional advice. Every effort has been made to ensure that the content provided is current, correct and clearly expressed. Nonetheless, the applicable laws, rules and regulations may differ due to an individuals circumstances and taxation is an area subject to frequent changes. As with all accounting, financial and legal matters you must consult a professional advisor before making any important decisions