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on sale for any increase in value after April 2013. Trustees therefore have a fiduciary obligation to consider the way these assets are held in light of this, as the consequences may outweigh the benefits of the structure in its current form. This will depend on several factors: what the main purpose or use of the asset is, the reason the structure was initially created and the current circumstances of the family. In these circumstances there are three main

options. First, leave the structure as it is and pay the ARPT and CGT. Second, seek advice to remove the company from the structure and hold the property directly within the trust. Finally, again with advice, look to distribute the property from the structure to be held by beneficiaries in their personal names.

All three courses of action have advantages

and disadvantages, and advisors will need to weigh up, with trustees and the settlor or beneficiaries, which option suits their needs best, based on their individual circumstances. Transferring the property into a personal name might seem to be the simplest solution, but there are drawbacks to this approach. Most importantly, the property cannot be held for the benefit of multiple persons, and succession planning is generally the primary driver for using a wealth-management structure, to ensure that assets are inherited and distributed as planned, without dispute. Furthermore, the property will then fall into the owner’s estate for inheritance tax purposes on their demise.

In addition, many clients, for various reasons, value confidentiality. Holding the property through a company enables the owner to take a step back, while owning the property directly requires their name to be entered on permanent registers. Removing the company from the structure

is another option for trustees, and again brings benefits and disadvantages over maintaining the status quo. While the ARPT won’t be levied against the property, as the trust is classed as a natural person, the property may create other liabilities, such as CGT and inheritance tax charges. This may be preferable for a trustee where the settlor or beneficiaries require and benefit from the protection and succession planning the structure provides. What will need to be carefully considered is that the status of their property can change with use, so if, for whatever reason, they require personal use of the property for more than six weeks per year, there could be consequences for their tax situation. Any changes need to be carefully considered, and again advice should be sought.

Practical implications Whatever their decision, the key process needed is to review the impact of the new legislation on structures and work with beneficiaries to ensure that the structures are meeting their current and future needs from a practical point of view.


If that means paying the new charge, then

trustees must be prepared to work through the practical implications. First, and perhaps most prosaically, there is the issue of the value of a property. With the rate of tax set in bands, properties falling just above the break point are subject to a much higher rate than those immediately below. There is expected to be considerable scrutiny on the value of property, and while owners are being asked to submit their own valuations, the UK government is offering a free valuation service for properties close to the threshold and where HMRC may dispute the owner’s valuation. It is for the trustee to consider whether they obtain an independent valuation or use HMRC’s services. Finally, the implications of paying the annual

charge must be considered, as it is a substantial amount. At this time of low interest rates, many have used the often superior returns on property as a key component of a portfolio of assets. This can mean some clients are asset rich but cash

“Review any offshore structure holding property in the UK”

poor, and freeing the funds to pay the charge may prove challenging. This is where other products and services should be brought in, such as lending or insurance products to better diversify their assets and provide the flexibility required.

Positive outlook

The new legislation being brought into play by the Finance Act 2013 will serve as a trigger for review of any offshore structure currently holding property in the UK. Some of these structures may have existed for a considerable time, as property is an asset that tends to be held for longer periods. It may have been some time since the structure was fully reviewed with a client to ensure that it is still fit for purpose – and now is the perfect time to undertake such a review. For the Channel Islands, the outlook is

positive. Property rental businesses and property developers are subject to reliefs, reflecting the importance of this sector to the UK property market. This is critical for the islands, as it represents a significant amount of business for the financial services sector. While properties held for personal use may now be subject to additional UK charges, remember that many are held this way for practical reasons such as succession planning and familial relationship management. Given the expertise present in the islands, the wealth-management sector here is still well placed to assist clients in establishing the best way to manage their property assets to ensure that they can continue to use them in the way they wish.

APRIL 2013 51

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