The Finance Bill 2017 however contains a provision that nothing in any double taxation relief arrangements made with the government of a territory outside the United Kingdom is to be read as preventing a person from being liable for any amount of inheritance tax by virtue of paragraph 1 or 5 in relation to any transfer of value if under the law of that territory:. On the face of it this double tax treaty prevents shares in a non UK company owning UK residential property and owned by a French domiciled person from being subject to inheritance tax in the UK. It also provides in Article IV (e) that shares or stock in a company … shall be deemed to be situated at the place where the company was incorporated. For instance the UK France Treaty of 1963 provides in Article V (1) that “Where a person was at the time of his death domiciled in some part of France duty shall not be imposed in Great Britain on any property which neither is situated in Great Britain, nor passes under a disposition or devolution regulated by the law of some part of Great Britain and, in determining the amount or rate of duty payable in Great Britain, such property shall be disregarded.” The UK has a limited number of Double Tax Treaties covering Inheritance Tax. The sale proceeds from a residential sale by an offshore company remain taxable to Inheritance Tax for a period of 2 years from the date of disposal of the property. This is to cover the situation of an individual or a company buying a UK residential property with a loan which is deductible for Inheritance Tax purposes on completion. The Finance Bill also makes loans to individuals and companies taxable to Inheritance tax to the extent they are made to finance a UK residential property purchase. In other words you look through the offshore company to the shareholder and this interest is taxable to Inheritance Tax.
The Inheritance Tax charge is on the interest that a shareholder has in the offshore company. Similar provisions apply to properties held through partnership vehicles. This is a major change in UK tax law and another attack on non-domiciled persons. When this is passed into law it will make all residential UK property owned by a close company (a company controlled by 5 or fewer shareholders) taxable. The Finance Bill 2017 is set to change all this for deaths (and other events such as gifts or settlements) after 5th April 2017. This is likely to be disapplied and they are likely now to be fully liable to Inheritance Tax in the UK. It will have a big impact on Swiss owners of UK residential property who are currently unlikely to be paying Inheritance Tax in the UK or Switzerland because of the favourable UK Swiss Inheritance Tax Treaty. It has important implications for French residents who own UK residential property because the current important protection of the UK France Inheritance Tax Treaty will be affected. It does not work for UK domiciled people because they are taxed on a worldwide basis because they are domiciled here. This is advantageous because on death the non UK shares pass and not the property and the offshore company shares are outside the scope of UK Inheritance tax. The shares can also be held by an offshore trust.
In its simplest form the property is owned by an offshore company and the individual ultimate owners own the shares in the company. Non UK domiciled people have traditionally been advised to own UK property via an offshore company. This article is for general information and does not constitute investment advice.
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Tax law is a highly specialised area and you should only act or refrain from acting after receiving full professional advice on the facts of your particular case. This article is for general information only. UK property owned by offshore companies – Finance Bill 2017 – Important changes for French and Swiss investorsĭavid Anderson, Sykes Anderson Perry Limited Solicitors London
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