As part of the Government’s crackdown on anti-avoidance schemes and arrangements for Inheritance Tax, legislation is to be introduced to limit the deduction of liabilities when calculating the value of a UK estate for IHT purposes.

Currently UK tax law provides that IHT is normally charged on the net value of a deceased person’s estate after taking into account liabilities outstanding at the date of death, and after deducting any exemptions, reliefs and the nil-rate band (presently £325,000.00).  The deduction is given for the full value of the liabilities due to creditors, not simply for the amount actually paid to them.

Property which is situated outside the UK and belongs to, or was settled by a non-UK domiciled individual is ”excluded property” and as such does not form part of a person’s estate for IHT purposes.

The proposed revisions to the law provide that:
A deduction for a liability will only be allowed to the extent that it is repaid to the creditor.  For example, a loan or a debt secured against a UK property will only be allowed if repaid to the creditor at the time of death.

No deduction will be allowed for a liability to the extent that it is incurred directly or indirectly to acquire property which is excluded from the charge to IHT.  For example, a Non-UK domiciled individual secures a loan or a debt against a UK property in order to use the loan or debt amount to fund the purchase of an overseas property.

The changes will mean that:

1)     The common arrangement of writing off a loan or a debt secured against a UK property at the time of death will result in the value of the loan or debt being disregarded and not treated as liability to reduced the deceased’s estate value charged to IHT.  Unless HM Revenue & Customs are satisfied that there is a commercial reason for not repaying the liability and it is not left unpaid as part of arrangements to get a tax advantage, the loan or debt must be repaid to enable it to be a deductible liability.

2)     In addition to individuals, trustees who have entered into arrangements involving the deduction of liabilities will also be affected.  For example, the use of the “double trust” scheme where borrowing between two trusts to create a “debt” for tax purposes will effectively be retrospectively blocked.

The changes above were proposed in the Budget 2013 and will take effect when the Finance Bill 2013 receives Royal Assent.

Within this policy of housing support and rehabilitation, and in compliance with EU Law, the Spanish Government has also passed a Decree to incorporate into Spanish Law the basic procedure for certification of energy efficiency of buildings.

Therefore, from June 1^st, 2013, it will be mandatory to make available to the buyers or tenants of buildings or parts thereof, for rentals longer than four months, a certificate of energy efficiency.

This certificate, in addition to the energy rating of the building, must include objective information on the energy characteristics of buildings, and in case of existing building, must also include document of recommendations to improve optimal or profitable levels of energy efficiency of the building or parts of this.  Therefore, you can assess and compare the energy efficiency of buildings in order to promote the energy-efficiency of the buildings and the possible energy saving investments. 

Reported by Ana Arza Fernández, Spanish Lawyer (Abogada), at Kobalt Law LLP
E-mail: anaa@kobaltlaw.co.uk

]]> http://www.kobaltlaw.co.uk/law/spain-certificate-of-energy-efficiency/feed/ 0 http://www.kobaltlaw.co.uk/law/uk-new-statutory-residence-test/ http://www.kobaltlaw.co.uk/law/uk-new-statutory-residence-test/#comments Mon, 22 Apr 2013 18:48:24 +0000 admin http://www.kobaltlaw.co.uk/?p=3967 more...]]> There are in excess of 5 million British citizens residing overseas. In 2011, the home office announced 149,000 left the UK to live overseas.  It is therefore  important that people with UK connections are aware of the practical implications of the new rules.

A new statutory residence test became effective on 6^th April 2013. Its purpose is to give greater certainty weather tax payers are UK residents for tax purposes and therefore subject to income taxes and capital gains taxes.

The test is not retrospective, meaning that old residency rules still apply for previous tax years.

The SRT is a three parts test. The first test is to determine whether the tax payer falls within the automatic non residence test.

If yes, then he will be considered as a non-resident. If not, the automatic residence use will be used to detemine his residency status.

If the tax payer fails this second test, he will only be UK resident if he falls within the “sufficient tiest test”.

Residency status is a very subjective area and the rules are complex. Professional advice needs to be taken before the residence status of an individual can be conclusively determined.

Reported by Loic Raboteau, French Lawyer, at Kobalt Law LLP

E-mail: loicr@kobaltlaw.co.uk

]]> http://www.kobaltlaw.co.uk/law/uk-new-statutory-residence-test/feed/ 0 http://www.kobaltlaw.co.uk/law/kobalt-law-llp-can-help-you-with-qrops/ http://www.kobaltlaw.co.uk/law/kobalt-law-llp-can-help-you-with-qrops/#comments Thu, 04 Apr 2013 21:36:41 +0000 admin http://www.kobaltlaw.co.uk/?p=3925 more...]]> As a Gibraltar admitted Solicitor and Senior partner of Kobalt Law LLP, International lawyers and solicitors, I am always dealing with off shore structures and solutions for High Networth Clients.

For some years QROPS [Qualifying Recognised Overseas Pension Scheme – an overseas pension scheme into which UK pension rights can be transferred and recognised], have been on the scene for internationally mobile clients.

It appears that since the Inland Revenue has finished its review of the QROPS market place, there are only two real countries left, who can supply QROPS solutions. These are Malta and Gibraltar.

Malta, for example has over  70 Double Taxation Agreements  and it has emerged as the number one jurisdiction of choice for advisers and clients.

Malta has strong links with HMRC and is a relatively trouble free Haven.

It is part of the  EU  and English is one of its official languages.

Malta is seeing an increase in foreign investment from Italy and especially Russia, of late.

Gibraltar also has many of these advantages; is  English-speaking and is recognised by HMRC as a stable and strong player.

Hence, both Malta and Gibraltar are able to complement each other and provide a QROPS solution ,most suitable for clients..

Although Malta has many double taxation treaties, if it does not have one with the country, a client comes from, then the client will be disadvantaged by having to suffer a 35% tax penalty.

This is where the client can use Gibraltar. Gibraltar has a very low witholding tax of 2.5% and can therefore be used as an alternative country.

Both jurisdictions therefore offer slightly differing packages but one or the other can be used to solve client problems.

At the end of the day, the client’s country of residence and his taxation regime, will dictate which of the two countries the client will choose.

If you are a person who lives abroad and you wish to benefit from QROPS

please contact Stefano Lucatello, Senior Partner at Kobalt law LLP

Selling a property overseas can be quite daunting as the legal process is very different from the UK, however Onur was there to guide us  and answer  all our questions promptly. We have now completed the transaction and would not hesitate in recommending Onur and Kobalt Law.

With kind regards Antoinette Thorpe

India offers a diversity in natural beauty, and has proud history of cultural heritage and is famous for its hospitality .It is often referred to have “Unity in Diversity” and a paradise of investment and its Economic growth rate stood at around 6.5% for the 2011–12 fiscal year. India has grown in real terms due to increased global presence on the world stage. A record growth in properties has been recorded in many metro cities like Mumbai, Bangalore, Hyderabad, Delhi, Chandigarh and many more.

India definitely fascinates people and investing in India due to its property growth attracts many people around the world. It has had a substantial growth in recent years which has lured many investers from around the world to invest in India. The RBI ( Reserve Bank of India) holds the “magic wand” of permissions for investment in India. The investment depends on the National and then regional State laws.The National laws rule in generalization of the Law and the Local State laws provide the grounds of operation of the  Law.

The Local NOC ( No Objection Certificates) are essential for the legal aspect of the property, which can be difficult for some to understand to be on the right legal track. There are some states like Himachal Pradesh where if you are not domiciled dont allow you to own a property, even if you are an Indian national, but you can own a property there by opening a company and taking correct permissions.

The Indian Government has set up certain guidelines for investment in India which are a minefield in itself. Certain provisions and priorities have been given to NRI( Non- Resident Indians) and PIO ( Persons of Indian Origin). The regulations permit a NRI or a PIO to acquire immovable property in India other than agricultural land or, plantation property or farm house. NRIs/PIO are allowed to repatriate an amount up to USD one million, per financial year (April-March), out of the balances held in the NRO account subject to tax compliance. This amount includes sale proceeds of assets acquired by way of inheritance or settlement.

Moreover foreign companies who have been permitted to open an office in India are also allowed to acquire any immovable property in India, which is necessary for or incidental to carrying on such activity. This stipulation is not available to entities which are permitted to open liaison offices in India.

India’s property investment is definitely profitable from all aspects. Even in the recent recession it was one of the countries which was not affected by the property bubble. But it entails all sets of different rules of Investment and taxes for Foreign Investment, which requires professional help and guidance in all matters pertaining to it.

A  foreign national resident outside India can hold, own, transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was a resident in India or inherited from a person who was a resident in India. If not the above a foreign nationals can invest in India by taking a prior permission from RBI. It is a legal process which is subject to following the guidelines laid by law.

There have been cases where the Government has confiscated properties of foreign nationals in Goa as they were not according to guidelines laid be the F.E.M.A ( Foriegn Exchange Management Act 1999). It has been noticed by the Goa Government that many of the foreign national’s who has purchase properties in Goa, has violated the rule laid down by R.B.I under F.E.M.A, by conveying property in their name without fulfilling the regulations. The scrutiny of those documents is in progress, until such time Goa Government has put additional corrective measures for registration of the  such properties in Goa. The one’s who have been on the right legal track are still allowed to own and invest.

“India can be a paradise for foreign investers as the country offers maximum return on investment which in some cases in the recent past has been more than 20% in a Financial year. But the absence of the good local knowledge and professional guidance can be a total nightmare” says Nitin.

To seek more advise on subject of investment in India or any issues related to investment in India or Property Investment in India get in touch with Kobalt Law LLP; we have offices in Chelsea in London ( UK )and we will be happy to assist you in your endeavour’s in India with our specialist Legal knowledge and local expertise.

Nitin Datta can be reached on 02077391700 or nitind@kobaltlaw.co.uk.

Property Taxes are on the increase again in 2013, even though 2012 was memorable as the year when ‘IMU’ was introduced.  The New Year sees the introduction of new Property Taxes known as ‘TARES’ and ‘IVIE’.

Of the new Property Taxes taking effect this year, let’s have a look at the first one known as ‘TARES’.

As provided for in the Presidential Decree passed in November 2012, Property Owners will have to pay the very much feared ‘TARES’ (Tariffa comunale sui rifiuti e i servizi), which takes the place of the previous Tax known as ‘TARSU’; the previous Tax on refuse collection and which encompasses an Environmental Hygiene Tax.

The new Tax will depend on the size of the property.  The most notable difference is that ‘TARES’ is payable dependent on the number of occupants and is also applicable to open areas and not only covered spaces, which are capable of producing refuse.  This therefore also includes shops and warehouses etc.

The Annual Payment is made in 4 parts; payable in January, April, July and October ‘only for 2013 a postponement of the first payment has been agreed for April’.

Somewhat forgotten in the last few weeks, but anticipated for many months is the so called ‘IVIE’, which is the Tax payable on Foreign Situated Property.  In essence, it is a kind of Foreign ‘IMU’ which came into force at the start of the New Year.

Persons who own property through onshore/offshore companies will soon be subject to an annual property tax together with  Capital Gains Tax at the time of a disposition.

Legislation outlining new taxes and charges which will have to be paid by Onshore/Offshore companies which own property in the UK was produced late last year.

A consultation document was printed mid way through 2102, but the Government has opted to add some important biting traps for the unwary.

This means that these companies MUST start to take stock and prepare to defend their advantage before April 1st 2013.

The Legislation is primarily aimed at properties which are valued at over £2 million and which are owned by “non-natural persons”, meaning, English companies, offshore companies partnerships and the like.

Companies have always been used to avoid “IHT”[ Inheritance tax, payable by a natural; person on death,  at 40% above a certain threshold, , which changes every few years, after certain exemptions and reliefs have been taken into consideration].

Offshore companies were also used to avoid Stamp duty , called “SDLT”, Stamp Duty to you and me, because the Land Registry title would remain unaltered, as the shares in the company were the only changes.

In future this will no longer be possible as there will soon be the imposition of;
1. a new tax called Annual Residential Property Tax (ARPT).
This is an annual charge of no less than £15,000 and no more than £140,000 depending on value.
2. Capital Gains Tax (CGT), on a future sale of that property at the rate of 28%.
3. Newly formed offshore company purchasers will also pay SDLT at 15%, whereas “humans” will pay SDLT at 7%.

Possible Solutions
A transfer of the property out of the company to ther individual owners will solve this problem but open them up to UK inheritance tax at 40 per cent, so of  limited use.

Take out life Assurance, but it is usually expensive and the effort does not justify the end.

Real Solutions
For those already owning property through an offshore entity, the solution is to transfer the property to an offshore Trust, using corporate Trustees.

New purchasers will just go straight for an offshore Trust.

Property Rental Companies or similar vehicles used to own and rent property out exclusively can get round this tax, but note that this is lost if the owners of the company use the property for their own occupation. One day is enough to lose the exemption.

Although Capital Gains tax will be payable, the basis of calculation will change from a simple 28% being payable on the sale price to tax being paid on the difference between the sale price and the value at April 2013.

Originally the CGT was to be based upon the original acquisition value and resale price. This is obviously an improvement for those who purchased a long time ago and have seen the value of their investment rise considerably. Even those who have bought unwisely will have made a big paper profit.

A 10-year anniversary charge, will be levied on Trustees, which could be as much as six per cent of the value of the property. However it is only payable on the amount of equity in the property, so it will be possible to reduce this to a minimum by taking out a loan over a long period of time to reduce this exposure.

The window of opportunity still exists to transfer a property to a new structure without CGT applying, but thereafter it is more likely than not that such a transfer or change will result in  a tax charge.

So you have two choices……buy quickly before April 1st or get a corporate Trustee!

For further information on  how we at Kobalt Law LLP,can assist you, please contact Senior Partner Stefano Lucatello on 0044 207 749 3209 or email: stefanol@kobaltlaw.co.uk.

By demanding a greater effort from Spanish citizens, the budget provides for the right formula to shorten the economic crisis, Montoro said.

Montoro insisted that it is precisely as a result of the policies pursued by the government that value-added tax collections are expected to have risen by 11.5% in November compared with the same month last year.

As part of the government’s austerity measures, VAT was increased from 18% to 21% on September 1, 2012. The 8% reduced rate was increased in the same date, to 10%.

During the course of his speech to the Senate, Montoro reiterated that the aim of the 2013 state budget is to exit the crisis as soon as possible. While acknowledging that it is a difficult time, Montoro underlined the need to send out signals of confidence to the whole of Spanish society, and to emphasize that next year will be the last year of crisis and recession.

According to the European Central Bank’s latest forecast, no eurozone country will be in recession in 2014, Montoro observed.

Underscoring that the reduction of the country’s public deficit must remain a top priority, Montoro warned that failure to reduce the deficit in accordance with the path set would be to prejudice the possibility of further funding necessary for Spain to exit the economic crisis.

The Spanish government said back in October that it expects to collect more from the new tax measures contained in the draft 2013 budget than originally anticipated, although the revised figure will only make the merest of dents into the country’s fiscal problems.

Spain’s tax hikes in 2013 have now been estimated at EUR4.55bn (USD5.86bn), EUR170m more than initially anticipated. Under the plans, about 70% of the additional tax levied would go to the central government while the remaining 30% will be hived off to the regions to tackle the local authority deficits.

The government expects to collect EUR2.4bn more in corporate taxes due to the tightening of depreciation rules, EUR800m with the introduction of a tax on lottery winnings, and EUR1bn following the tax hikes on capital income.

Despite the upwards revision of the tax revenue figures, the International Monetary Fund says that the budget deficit will reach 7% of gross domestic product this year and 5.7% next year, overshooting agreed targets of 6.3% and 4.5% respectively.

Following a cabinet meeting on September 27, it was announced that budget measures for next year will seek to raise almost EUR40bn from public spending cuts and increased revenue. Proposed tax measures include reducing depreciation allowances by 30% in 2013 and 2014, taxing capital gains on assets sold within one year of purchase as income at progressive rates, and subjecting lottery winnings in excess of EUR2,500 to a 20% withholding tax.

HM Revenue and Customs (HMRC) is in the process of sending letters to the account holders to warn them that, if they ignore a time-limited opportunity, they could face penalties which, in certain circumstances, could reach up to 150% of the taxes owed. This is the third time such reminders have been sent to UK taxpayers found to have accounts with Swiss banks.

A landmark tax agreement between the UK and Switzerland will enter into force on January 1, 2013. Under the terms of the treaty, accounts held by individual UK taxpayers in Switzerland will be subject to an anonymous one-off tax payment in 2013, providing that the account in question was open on December 31, 2010 and remains open on May 31, 2013.

The payment will settle income tax, capital gains tax, inheritance tax and value-added tax (VAT) liabilities in relation to the funds in the account. However, the tax will not be applied if the account holder instructs the bank to disclose details of the account to HMRC. If a disclosure is made, HMRC will then seek unpaid taxes with the relevant interest and penalties.

The deal will also see the introduction of a new withholding tax on income and gains arising on investments held by individual UK taxpayers in Swiss banks from January 1. Tax will be charged at a rate between 19% and 34%, dependent on the assets in question and determined by both the duration of the client-bank relationship and the initial and final amount of capital held in the account. Payment will satisfy UK tax liabilities on the income and gains, but will not apply if a disclosure is made.

Jennie Granger, HMRC’s Director General Enforcement and Compliance, said: “We are working carefully through the offshore data we have received and this work has so far brought in GBP100m (USD162m) in unpaid tax that would otherwise have remained lost to the UK.” Granger anticipates that the Swiss deal will generate an additional GBP5bn in tax revenue for the UK.