The UK Government's recent consultation on tax reforms in
respect of non-domiciled individuals, whether resident or not, has
resulted in a shake-up of company law. The UK has announced that
from April 6, 2017, residential property in the UK held by non-UK
companies will be subject to UK inheritance tax, or IHT.
As a result, British Virgin Islands companies holding UK
residential property owned by non-domiciled individuals should note
The value of the shares in the BVI
company will be subject to IHT where all or part of that value
derives from UK residential property.
Both individual shareholders and
trustee shareholders will be affected.
Directors of affected companies will
be personally liable for reporting chargeable events to HMRC (Her
Majesty's Revenue and Customs) and for paying any outstanding
Debts relating exclusively to the
property, e.g. outstanding mortgages, will be allowable when
determining the value chargeable to IHT. However, loans between
connected parties will be disregarded when determining the value of
the property which will be chargeable to IHT.
Obtain UK advice
Many owners of UK residential property presently
"enveloped," i.e., held in either an offshore or onshore
company, are taking steps to "de-envelope" or transfer
their residential property out of the corporate structure through
liquidation. For some persons, de-enveloping their BVI company
might be a worthwhile option. For others, maintaining or modifying
the current structure might be a better option. It is best to seek
UK advice to ascertain exactly what works best for your specific
Liquidating a BVI company
As a result of the new rule, affected BVI companies are
considering whether to liquidate their holdings and transfer the
property or properties during liquidation to their owners.
The procedure to liquidate a BVI company is fairly
straightforward but the timeframe remaining is quite short since at
least one month is required to complete the entire process. The
process generally involves the passing of resolutions by directors
and shareholders and the approval of a plan of liquidation followed
by the appropriate notices and filings. O'Neal Webster can
assist in advising on the liquidation process and work with
liquidators and other parties involved in the process, including
issuing legal opinions where necessary.
Maintain or modify existing structure
For those who have been advised to retain or modify their
current structure, there would still be benefits to holding
property through a BVI company. Those benefits include:
Information on directors and
shareholders is held privately, and is not publicly filed or
available for inspection.
The opportunities for succession
planning through joint ownership of shares, special class rights,
transmission of shares, and other options still exist.
The company law principle of limited
liability continues to exist. For example, where the property held
is subject to a mortgage, the liabilities under the mortgage will
be those of the company and not the shareholder.
Continued flexibility, such as the
ease of restructuring property holding and distributing assets
based on straightforward solvency tests.
Familiarity to lenders, meaning that
the ease of taking and registering security and obtaining priority
over subsequent creditors ensures the process of financing a BVI
company is also cost effective and predictable.
No corporate, capital gains,
withholding, or estate taxes are charged in the BVI.
BVI companies have low annual
In any scenario, whether you wish to de-envelope or continue
with your existing or modified structure, we can assist. But key to
obtaining the best outcome is to take immediate action and secure
appropriate UK advice.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Common Reporting Standard (CRS) has been initiated by the Organization for Economic Cooperation and Development (OECD) aiming at improving international tax compliance and preventing tax evasion, through the automatic exchange of information between the countries that implement CRS.
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