Labour Councils Teach Us How To Invest In Commercial Property !

Labour Councils Teach Us How To Invest In Commercial Property !

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Labour Councils Teach Us How To Invest In Commercial Property !

Two Labour Councils made investment purchases of commercial property. (Strange when councils are meant to tax us for the provision of local essential services, not for running a property investment business!)

The councils have purchased these properties using offshore companies in Luxembourg and saved £12bn in SDLT. … And its all perfectly legal.

The councils are obviously tax resident in the UK, so how does buying these properties through a Luxembourg company help?

Can anyone shed any light on how this structure works?

Ranjan Bhattacharya
Baker Street Property Meet
Next Meet in Central London, Wed 29th Nov 2017. (200+ People attending)
More info at www.bakerstreetpropertymeet.com



Comments

Ian Narbeth

8 months ago

It appears in one case that the seller owned a shopping centre through an offshore company and insisted on selling the company. The Council had no option to avoid paying SDLT. I am not a tax specialist but there is a saving by buying shares rather than the asset. Even if the owning company had been a UK company SDLT would still have been saved.

The press are making something out of nothing.There is nothing wrong with buying shares in a company. Also, think about it. Is the criticism that a local authority funded by rate and Council Tax payers has not paid enough SDLT to HMRC? It's a zero sum game.

Bill O'Dell

8 months ago

Ian,
The whole point here is the levelness of the playing fields. Rules is Rules and if a government can bend them then everyone should. Of course we all want best value from our local authorities, but more than that we want fairness.
The tax system is tilted against landlords UN-fairly and to see government take advantage of loop holes sticks in my craw.

Ian Narbeth

8 months ago

I think it is imprudent of Local Authorities to take on debt to acquire commercial property assets. They are not property specialists and the ratepayers will have to pay to service the loans. If tenants default or fail to renew leases and/or rental values fall then the value of the assets may fall and income may not cover interest. It gets worse if the property is within the Council's area. The Council might be pressured not to charge a full rent in order to protect "local" businesses and jobs.
However, none of that is relevant to Ranjan Bhattacharya's point. I see nothing wrong with saving tax lawfully. Unless we are to require Councils and the Government not to structure their affairs in a tax-efficient manner, we should not automatically assume there is wrongdoing.

No doubt the Corbynistas think that business people should simply pay, pay, pay and sit back as milch cows to pay for socialist folly. However, if it is OK, which it is, for citizens to arrange their affairs tax-efficiently, I see little wrong with Councils doing so, especially where (as appears to be the case here) it was a "scheme" forced upon the buyer.

The Paradise papers business is being whipped up by the left to attack successful business people.

My point was not to imply wrongdoing or accuse the Council of hypocrisy. I just want to know exactly what the Council's have done so we can do it too!!

My understanding is that if you are resident in the UK, setting up an offshore company to invest in the UK assets would be of little value since ownership of the offshore company would have to be disclosed. I thought that it is mainly non-residents who use offshore companies.

I am just trying to figure out the Council's angle here?

Mike D

8 months ago

The point is a valid on in Tax fair play, IF a council or 3rd party have the ability to over turn the market through Tax advantage, then it creates a skewed market; 2 outcomes
1) No Tax for HMRC
2) Greater Revenue liabilities for the Tax payer, NOT seen as in a 'commercial business case' within the purchase, so always a surprise to the revenue budget, thus fighting the very essence of the purchase to start, giving endless state aid and a drain to the taxpayers.....
Wasn't this the exact reason blocks of council houses were sold off to businesses in the 1st place, as councils couldn't afford the update/refurbishing costs of its stock, due to NOT charging enough rent to start with........
Oh how little people learn from errors of the past....Socialism, is an ideal, but in reality a commercial debt ridden drain on public finances, creating debt and a decaying public service.

David Mensah

7 months ago

buying properties through an offshore company, a standard technique to avoid also IHT, has recently become much harder for individuals because of ATED and new rules that bring poperty assets structured this way within HMRC reach.

Colin McNulty

7 months ago

I don't believe that ATED applies David, as the properties were commercial, not residential. However I'd like to question the figure in the original post. The council have saved £12 BILLION in SDLT have they? I'm quite sure that should say Million!

Ian Muir

7 months ago

Reply to the comment left by Baker Street Property Meet at 09/11/2017 - 16:27
My understanding was similar, that when offshore assets owned by a UK business are sold, the proceeds could not be brought back into the UK without being taxed.

So it looks like an interesting angle that they may have found to mitigate tax, but without previously knowing about the case, I do not understand why they are investing in offshore assets when it's fair to assume they have no expertise in this or indeed any area of investment.

Ian Narbeth

7 months ago

Reply to the comment left by Ian Muir at 13/11/2017 - 09:31
The issue as I understand it, in the case of one of the local authorities, is that it bought the shares in the company that owned the property. If it had bought the asset (the property) directly it would have paid 4% SDLT on the price. On shares the SDLT is 0.5%. This can result in a substantial tax saving though in many cases the seller will want to increase the price as the buyer may be making a saving. Buyers don't usually save the full 3.5% or even 1.75% if the price is increased because the legal and accountancy costs are much higher. When you buy a company you buy it "warts and all" and so the buyer must conduct detailed due diligence and seek warranties from the seller as to tax liabilities, potential litigation liability, employees' rights etc. Professional fees can easily be two to three times the fees for a straightforward asset purchase.

If a residential property worth more than £500,000 is held in a company then ATED will apply. This is to discourage wealthy people from simply putting their houses and flats into companies and selling the shares. There is relief from the tax if property is rented out on an arm's length basis to an unconnected person.

You write that "the proceeds could not be brought back into the UK without being taxed". What tax are you talking about? You have switched from looking at the tax saving the buyer makes (reduced SDLT) to possible taxes the seller is liable to pay.

Ian Muir

7 months ago

Reply to the comment left by Ian Narbeth at 13/11/2017 - 10:51
I had assumed that they bought an asset rather than shares. This would surely have incurred CGT?

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