Offshore partnerships - IHT & SDLT planning

If you are domiciled outside the UK (a 'non-dom'), you will be liable to Inheritance Tax (IHT) on any UK property you own. To keep UK assets free from IHT for non-doms, it is now standard planning for to acquire any UK property through an offshore company.

If the non-dom lives here, the shares in the offshore company are usually held in an offshore trust. This prevents the person being liable to tax on income and gains made by their offshore company. Offshore trusts also avoid the property falling back into the IHT net offshore company charge if the non-dom becomes “deemed” domiciled in the UK after 17 years' tax residence.

Many non-doms own property in the UK, in their own name, and now realise that a potential IHT bill would have been avoided if they had bought through an offshore company. So, can their property now be transferred to an offshore company without adverse tax consequences?

Capital Gains Tax (CGT) is usually not a problem because the non-dom will either be not ordinarily resident in the UK or, if they do live here, the property is usually their main residence and thus CGT exempt.

The main problem is that the transfer to an offshore company attracts Stamp Duty Land Tax (SDLT). And, where the property is worth in excess of £1million, the rate (from 1st April 2011) is 5%. For example, the transfer of a property worth £2million to an offshore company might save £540,000 of IHT, but the SDLT cost of the transfer would be £100,000.

The solution? The charge to SDLT can be avoided if the transfer is made , not to a company, but to an offshore limited partnership of which the non-domiciled partner is a “limited” partner entitled to all the partnership income alongside an offshore company acting as “general” partner.  The charge to SDLT on a transfer to a partnership follows the income entitlement, so if the donor retains the right to income, there’s no chargeable disposal for SDLT purposes.

The end result? An asset exempt from IHT and with no charge to SDLT on creation.

IHT and SDLT mitigation, through the use of an offshore partnership, is not a “scheme” which, by its nature, needs to be disclosed to HMRC.

Thrings has successfully registered property on behalf of the offshore corporate partner at the Land Registry without being required to pay SDLT.  We have considerable expertise at preparing offshore partnership agreements, liasing with overseas company formation agents to create the appropriate structure, and dealing with all the property and land registration aspects.

The costs will depend on the circumstances of each case, but one can normally safely budget at fees of between £15,000 and £25,000 (only a small part of which are liable to VAT) - a modest proportion of the massive SDLT saving.

For further information or a no-obligation meeting/discussion, please contact us.

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