Have UK tax reforms for owning UK real estate affected the use of Guernsey structures? – Tax

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The purpose of this note

The purpose of this article is to highlight the many other reasons for using Guernsey structures, in addition to mitigating tax leaks for owning UK real estate (and other assets). In the past, the focus on the benefits of using Guernsey structures was often focused only on the tax benefits available, while ignoring other potential benefits.

What changed ? – Tax reforms for non-UK resident owners

Since 2015, the UK government has announced various tax reforms to more closely align the tax treatment of non-UK resident owners of UK real estate (both residential and commercial) with that of UK residents owning UK real estate. United.

These reforms were introduced as part of the UK government’s broader efforts to tackle tax evasion, tax avoidance and non-compliance, and were designed to ‘level the playing field’ in terms of taxing taxes. gains between non-UK resident investors and UK residents in the UK. immovable.

Notwithstanding these reforms, investors are still free to structure their investments in UK real estate through Guernsey structures, thereby reducing some of the adverse UK tax implications that the use of UK vehicles can have.

Legal mitigation of tax obligations is still permitted.

Why using Guernsey structures can be beneficial

There are a number of important non-tax reasons why structuring through a Guernsey structure is beneficial for owning UK real estate (and other assets):

1. The versatility of Guernsey vehicle options available

Guernsey law allows for a versatile variety of structures that can be used. Some of the main advantages are the flexibility of laws such as:

Companies – Very flexible company law, distributions on a solvency basis (not limited to the distribution of profits), no withholding tax on distributions, re-domiciliation authorized, Guernsey corporate tax is currently 0% without capital gains tax.

Limited partnerships / Guernsey Property Unit Trusts (GPUTS) – Both of these provide options for tax-transparent structures that can aid planning, especially where there is a diverse pool of international investors.

Protected Cell Societies – Provides a company that has the ability to nominate different shareholders in different cells and closing assets in those cells, and can be an alternative to a collective investment scheme.

Trusts and foundations – For investors with estate planning in mind, Guernsey is a world leader in this area with a well-developed trust regime. Since 2012, Guernsey has been able to offer Foundations for Wealth Planning and Asset Ownership which are increasingly popular, particularly with clients in civil law jurisdictions. The foundations in Guernsey are particularly interesting because of their legislation on “disenfranchised” beneficiaries.

2. Guernsey collective investment funds and listed real estate investment funds

Guernsey Collective Investment Schemes (CIS) and the Real Estate Investment Trusts (REITs) listed on the International Stock Exchange (TISE), which use UK offshore entities as listing vehicles, offer the following benefits to investors:

  • improved yields – exemption or potential exemption from UK corporation tax on rental income and UK capital gains tax on company profits at fund level, through the ‘transparency choice’ or a “choice of exemption”;
  • reduced or zero transaction costs – no stamp duty applies to the sale of shares or units of a Guernsey entity unlike the SDLT suffered with a British entity;
  • Private investment fund regime (PIF) –provides lighter regulation for a mutual fund and is therefore more profitable to use, rather than other more regulated fund structures.

3. Exemption of Eurobonds from withholding tax in the United Kingdom

TISE is an internationally renowned stock exchange headquartered in Guernsey, with offices in the Isle of Man, Jersey, Dublin and London.

Currently, almost a third of all UK REITs are listed on the TISE to take advantage of the Eurobond exemption from UK withholding taxes, as non-UK companies issuing secured debt on UK real estate can list debt on a recognized stock exchange for the purpose of paying interest to non-UK entities and persons, without deduction of UK withholding tax.

4. Privacy and confidentiality (no secrets)

Final beneficial ownership of structures is currently not publicly available, but must be disclosed to the Guernsey Registry and shared to fully meet the obligations of the Common Reporting Standard and Tax Information Exchange Agreements.

In addition, trust and foundation instruments, limited partnership agreements, and limited liability company (LLC) agreements are not publicly available, so investors can manage their affairs privately.

5. Internationally recognized jurisdiction

Guernsey has a reputation as a well-regulated and transparent international financial center. Guernsey has strong and extensive anti-money laundering laws and has entered into more than 61 TIEAs based on the OECD model agreement. Guernsey also has a world-class professional infrastructure with numerous legal, tax, accounting and corporate service providers providing the high level of services required of investors. Other benefits include:

  • All trust and enterprise service providers need to be regulated (this is not a requirement in many other countries, including the UK).
  • Most major financial institutions in UK, EU and US know about Guernsey and are ready to provide services. Compliance issues and therefore procedures such as opening bank accounts and raising funds can be carried out with minimal hassle.

6. Guernsey: capacity of redomiciliation of entities

It is often necessary or advantageous to relocate, or redomiciate structures to other jurisdictions. For example, when geopolitical events or legislation becomes unfavorable, or there is a change in the investment strategy followed, or there is an unfavorable opinion regarding the structure’s current jurisdiction.

One of the attractions of this redomiciliation option is that it allows an entity to transfer its legal base to a different jurisdiction, while retaining its legal personality and thus remaining subject to all agreements (including external funding and related collateral), to which the entity was a party before the redomiciliation took effect.

In contrast, companies incorporated in the UK or in other jurisdictions cannot be re-domiciled, which may limit the multi-jurisdictional structuring options available to these onshore companies.

7. Ability to open up to a wider audience of buyers upon exit

Holding real estate or infrastructure assets in the UK through a Guernsey entity may create a larger international buying audience upon exit. An international buyer may not wish to own shares directly in a UK company if they are not currently exposed to UK tax.

It is also perfectly acceptable for a UK resident to hold the asset through a Guernsey company, to register the company as a UK tax resident and to manage the affairs of the company from the UK. At the time of sale, shares in the Guernsey company can be sold and the Guernsey company either re-domiciled (as described above) or its tax residence changed to suit the new owner.

Have UK Tax Reforms Changed the Use of Guernsey Structures?

In short, no, not quite.

The benefits of CIS continue to persist as the UK government allows CIS to make a choice of transparency or a choice of exemption, meaning that investors will not be subject to possible double taxation. As a result, we have seen regular use of Guernsey’s holding structures and continue to see new inquiries.

We have also seen a number of structures migrate to Guernsey to benefit from the reputation and expertise of the jurisdiction, especially as the substantive requirements are now increasingly important to demonstrate.

Additionally, advisors and clients focus less on tax benefits but revert to traditional reasons for using Guernsey structures, such as; heritage preservation and succession planning.

There are clearly a considerable number of advantages for investors to use Guernsey structures to hold real estate and other assets, with a lot of flexibility and variety, to form a structure and to suit any investor.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

About Lillian Coomer

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