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An attack on real estate vehicles is well-trodden ground and a number of jurisdictions worldwide including Germany, France and Spain have a form of real estate tax on transfers of interests in property rich vehicles.  Taxing such vehicles in the UK was considered when stamp duty land tax was introduced in 2003 but rejected for good reasons.

Introducing a transfer tax on property rich vehicles could have devastating consequences for the fragile UK property market.  The UK real estate market is currently being propped-up to a significant extent, particularly at the high end of the market, by overseas investors.  Penalising such investors now when the market is only just regaining its strength would be foolhardy, particularly if based on the incorrect assumption that real estate vehicles are always a stamp taxes dodge.

Property rich vehicles are not the simple stamp duty scheme they are often presumed to be.  Stamp taxes are generally payable on the acquisition of UK real estate even by non-UK companies.  Whilst it is possible to sell interests in an offshore company without triggering further UK stamp taxes, there are real tax disadvantages in some cases.  This is not an aggressive loophole strategy.

There are many reasons why individuals and companies acquire UK real estate in special purpose vehicles such as offshore companies.  Although toted as a stamp duty wheeze in press reports, stamp duty is rarely the driver for these structures.  This is particularly the case since broad stamp duty anti-avoidance rules were introduced in 2006.

Capital gains tax savings are not the driver either.  Foreign investors do not generally pay capital gains tax on disposals of UK assets in any event.

Often the benefit of maintaining privacy is of crucial importance to high profile purchasers given the UK Land Registry is publicly accessible.  Overseas individual investors often prefer investing via an offshore company so that they are not liable to UK inheritance tax.

Offshore structures also carry additional tax risks (for example, income tax if directors reside in company-owned properties; and UK corporation tax if the offshore company is or becomes a UK tax resident).

Investing via a special purpose vehicle such as an offshore company is not a panacea for all property related tax ills and is generally a finely balanced decision.  It is to be hoped that the Government will fully consider all the potential ramifications of a transfer tax on real estate vehicles before introducing such a potentially damaging measure.

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