UK Resident Individuals Personal Property Ownership ? Unit Trusts as the Alternative to Companies by Anthony L. Murty
It has been long established practice for UK residential property occupied by non-UK domiciliaries to be owned by an offshore investment company. Usually the company is owned by an offshore trust of which the individual and his family are the beneficiaries. This type of arrangement insulates the property from a potential charge to Inheritance Tax that would otherwise arise on the death of the individual and from capital gains tax on disposal. In Barbados traditionally property purchased by non-residents has been acquired through the purchase of a company established outside of Barbados. Often a BVI company. Developers from outside of Barbados have usually purchased land into one offshore company then sub-divided before development into separate BVI companies each company representing the plot of land to be developed and resold by a sale of the company to the ultimate owner. The reason for this is to avoid the cost of the Barbados Property Transfer Tax which at one time was as high as 18% divided between purchaser and vendor. The current rate of the tax is 7.5% payable by the vendor. Recently developers have found a sales resistance from purchasers resident in the UK to buy the shares in the offshore company. The problem is the same for both types of property owner; it is the potential of a liability that may arise from an income tax charge on the value of a benefit assessed for the personal use of the property. Living accommodation provided to an employee or a member of an employee?s family or household by reason of the employment is a benefit, treated as earnings on which that employee is chargeable to income tax. It is clear that the benefits code can apply in respect of ?shadow directors?. A ?shadow director? is a person in accordance with whose directions or instructions the directors of a company are accustomed to act. A non- domiciled individual who is resident and ordinarily resident or, resident in the UK is taxable on foreign earnings when received (remitted to) in the UK. The traditional arrangements using a trusts and offshore companies do not insulate the family from a charge to income tax on the true market value rental of the property. Even if true management and control can be demonstrated to be from offshore the occupier of the property is likely to be within the charge to income tax on the benefit-in-kind from his occupation. We know that in most cases the owner occupier of property owned by an offshore company will, because of the usual propensity to meddle in the management of the property that he occupies, be a person who, although not actually in the employment of a company, falls into the definition of ?shadow director?, thereby making him liable to tax on the benefit of occupying a property rent-free. A new approach can now be adopted to the planning for UK residents who plan to occupy themselves or by family members property funded from personal wealth. At the present time, under current law, part of this new arrangement provides for the mitigation of the charge to Stamp Duty Land Tax on the transfer of legal ownership of UK property. In Barbados there is one charge to Property Transfer Tax on the vendor when the land is first acquired.