Master Class #34-Ways to Mitigate Your Taxes if You Acquire Investments or Property in UK

A sharing by Jason Collins Head of Tax – Head of Client Relationships, Financial Services on UK Tax System:

For UK Domiciled residents, the UK residents had to take along all kinds of tax, Income Tax, Capital Gains Tax and Inheritance tax, regardless of UK or non UK origin of the income or gain. For non residence domiciled residence they are still liable to be taxed on money made in UK like property or otherwise there isn’t any tax on money made in UK. They are also exempted from capital gains taxes but they are still liable for inheritance tax for both UK and non UK sources.
Non UK Domiciled individuals, the UK resident essentially are not required to pay for any tax for the worldwide income and only taxed for UK incomes. For non UK domiciled resident, they are liable to be taxed in UK income tax and UK inheritance tax but not capital tax.

Definition of domicile:
Domicile is the jurisdiction one regard as a permanent home. One can only have one domicile and the domicile of ‘origin’ is from the father. Domicile usually remains with one for lives unless one acquires domiciles of choice. It is very difficult to establish such domicile and one has to settle residence in that country and settle ties with the original country.
Not the same as nationality or residence.

Definition of residence:
Residence is more of a short term concept and is based on where you lived in a tax year. The UK had a very complicated system where one can potentially be a UK residence for spending 45 days there (contrast to other country which requires 6 months and one is certain to be a residence) (but the system still provided certainty). However, if one remains in UK for 183 dya, they are always being considered a resident

Investing in the UK:
Fortunately for those who invest in UK, UK still has the “tax haven” status. The tax position depends upon the type of income. Non-residents generally are not capital gains. On top of that, every type of income/gain are favoured when compared to UK residents.

Focus: Acquiring UK Real Estate
There are 4 tax encountered in UK real estate investment.
Stamp Duty Land Tax (transaction charge paid upon acquiring the property): up to 7% based on value
Capital Gain Tax: As a none residence, they have to pay none
Income Tax: 20% on net profit from rental, non UK interest can be deducted (reduce and eliminate UK tax)
Inheritance Tax: 40% if held directly (first 325k pound is tax free). No IHT if held via offshore company. This can be done as the interest is there in the shares in the offshore company and that is a non UK asset and since a Malaysian is non domiciled they don’t need to pay any inheritance tax.

However they are now special rule that apply to residential properties for own occupation which worth over 2 million pound held via offshore company.

The Special rules for residential property worth more than 2 million pound held by “non natural person (company):
-stamp duty land tax of 15%
-Annual Charge payable from 15000 pounds to 140000 depending on the value
-Capital Gain Tax charged at 28% on gain accrued from 1 April 2013
-Inheritance Tax exemption are still available.

Points to watch:

-Asian domiciliaries are still liable to inheritance tax on UK real estate if held directly
-”Enveloping” into an offshore company takes out of IHT. (typically done)
-Corporate structures therefore usually always suitable for commercial investments.
-Corporate structure for personal investments into residential property still be appropriate depending on facts

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