LCP speaks to HW Fisher’s Head of Tax & LCP NED, Jamie Morrison, on his FAQs from clients looking to invest in London real estate. With his extensive knowledge and licensed by the ICAEW, Jamie advises high profile HNWIs, entrepreneurs and family offices on property structuring, asset protection, succession and capital tax planning. His experience has meant that Jamie is frequently featured in international and national publications.
1.How should I structure my investment? Should I purchase in a buy-to-let company or personal name?
There is no hard and fast rule on this. It really is dependent on what your individual situation is regarding your portfolios, residency and domicile position.
2. Is it possible to gift property to my children in order to mitigate Inheritance Tax?
Yes – but as ever, such things are not straightforward. Any gift needs to consider three main taxes:
Stamp Duty Land Tax – This does not usually apply on a gift but can where the donee (i.e. the gift recipient) takes over the donor’s obligation, such as if a property is transferred with a debt still attached.
Capital Gains Tax – Any gift incurs Capital Gains Tax based on the difference between the market value and the base cost of the property. For non-residents, they can rebase their base cost to the April 2015 value where it was acquired prior to this date.
Inheritance Tax – Any gift remains within the scope of Inheritance Tax for 7 years from the date of gift. For gifts between 0-3 years, the tax rate remains 40% but the tax rate abates 20% per year on a straight line basis (so year 3-4 is 32%, 4-5 is 24% etc).
3.Can I live in the property after gifting it to my children?
Generally no unless a market rent is paid for the continuing occupation. Otherwise the gift is not regarded as effective for Inheritance Tax purposes as it is treated as a ‘Gift with Reservation of Benefit’.
4. Is it worth buying in a company?
Potentially – it depends on the level of portfolio held by the individual investor and the yield of the property. There is no ‘one size fits all’ approach to the correct structure to acquire a property and each case must be considered on its merits.
5. Are there still advantages of holding property in a trust?
Again, potentially. Trusts can avoid the 40% issue on death but UK residential property held in Trusts is subject to the ‘relevant property’ charging regime where they are taxed at a rate of 6% every 10 years based on the market value of the assets held in Trust. In this way, Trusts can be more expensive from a tax point of view (as well as the running costs of a Trust structure) than direct ownership with proper Inheritance Tax planning.
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