Possible exit strategy by transferring beneficial interest

Hi Jane

First, may I take this opportunity to thank you personally for the incredibly generous donation you made to help fund the running costs of the Property118 forum when you submitted your "Readers Question" article. It is very much appreciated 😀

Please excuse my rather verbose reply to your relatively short question. Given your generosity I wanted to be as thorough as possible.

The simple answer to your question is YES.

You would need to:-

1) Change the basis of ownership recorded at HM Land Registry from Joint Tenancy to Tenants in Common
2) Have a Declaration of Trust prepared to document the amended percentage of ownership
3) File form 17 with HMRC.

None of the above would have any impact on any mortgages you might have. Such arrangements are completely invisible to mortgage lenders as there is no requirement to register the Declaration of Trust with HM Land Registry. Permission from mortgage lenders is neither required nor recommended. This is because a permission request puts a lender in a particularly awkward position. If they agree then there could be additional legal complications if they ever need to repossess. For this reason alone, consent would be declined. However, if the mortgage lenders remain oblivious to the transaction, their security and ability to repossess is unaffected. Our recommended barristers check all mortgage conditions to ensure there are no specific clauses preventing the transfer of beneficial ownership. Such clauses are seldom discovered.

Cotswold Barristers are very experienced with this and charge a fixed fee of £250 + VAT for each separate property transaction to deal with all of the above . Please see the member profile and contact form for Mark Smith, Head of Chambers at Cotswold Barristers via this link >>> https://www.property118.com/member/?id=1945

Please note that CGT would become payable on any capital appreciation since April 2015 regardless of whether the Country you become resident in charges CGT..

If you decide to become resident in Malta you will be able to sell UK property and only pay CGT on capital gains made since April 2015. This is providing the sale completes in the UK tax year (commencing 6th April) after you first become non-resident for UK tax purposes. Taxable gains can be calculated pro-rata to the ownership period on a ‘proportional basis’ or as an alternative you can obtain professional valuations to reflect the value of the properties as at April 2015. If you have owned properties for a considerable amount of time this could result in a significant reduction in latent gains subject to CGT.

Any form of residence in Malta allows you to form a holding company. In my case, it was very easy to become resident here on the basis that my largest consultancy client (a major holiday group) did a deal with me to make me an employee. This resulted in me paying some tax and NI in Malta so that I got an NI number, which in turn made residency extremely straight forward. However, when I met my accountant in Malta we discussed the fact that there are a lot of people like you and I who are looking to take semi-retirement here. He explained another residency program (I can’t immediately recall the name of it) but it involves proving that you are of independent means. You need to have at least a 12 month rental contract or to own a property here. I rent and I would recommend you do the same, at least initially, if you decide to move here. You would also have to prove that you have £25,000 cash in the bank and be of independent means. The latter would be achieved by presenting your rental business accounts.

Nobody really knows how Brexit will play out, however, the Maltese are completely un-phased about it. They want as many high net worth people living on the island as possible because they appreciate how valuable this is to their economy. There is no Council Tax, CGT or tax on foreign dividend income distributed via a Maltese Holding Company to Malta Residents. However, they know you will be spending your money in their Country and paying VAT on that.

What you have to bear in mind in that Malta is a very small Country and it is also the most densely populated Country in Europe. VAT alone is enough for the Country to thrive and this is quite apparent by the number of state funded festivals are firework displays they have (daily in the peak season!).

Malta is an extremely wealthy Country with only 3,000 people claiming benefits. They also have special tax schemes for film companies and online Casino’s, hence the likes of Ladbrokes and 888.com all have offices here. They pay their staff ridiculous salaries. It is not uncommon for Geeks in their 20’s to earn upwards of £200,000 a year here! Unemployment is less than 1%, hence crime rates are also particularly low.

The Maltese Government don’t like cars because there are already too many on the island, so they tax imports of cars extremely highly and their road tax is also high and increases with the age of the car. They also have heavy fuel duties. That said, my wife and I don’t have a car! We don’t need one because public transport is so efficient.

I will be pleased to introduce you to my accountants in Malta if/when the time is right.

I thought you might also appreciate some information on what defines a non-resident for UK tax purposes. This is complicated to say the least. The legislation runs to over 60 pages of very small print. That said, I have studied it at length. Below is a very short overview of what I consider to be the key points.

If you spend less than 16 days a rolling year in the UK then you are definitely classified as non-resident for tax purposes.

You can spend more days that that in the UK without becoming resident for UK tax purposes, but this depends on how many ties you have to the UK. The more ties you have, the less time you can spend in the UK before you are considered UK resident for tax purposes.

The ties are:-

1) You have been resident for tax purposes in the UK in the last three years
2) You have a home available to you when you visit the UK
3) You have a spouse or dependent children in the UK
4) You earn income in the UK (note that rental income is considered to be “un-earned”)

If you score all four points you will be classed as UK resident for tax purposes if you spend more than 16 days in the Country in any rolling 365-day period.

If you score three points you will be classed as UK resident for tax purposes if you spend more than 45 days in the Country in any rolling 365-day period.

If you score two points you will be classed as UK resident for tax purposes if you spend more than 90 days in the Country in any rolling 365-day period.

If you score one or zero points you will be classed as UK resident for tax purposes if you spend more than 180 days in the Country in any rolling 365-day period, providing that neither of those stays extend beyond 90 days.

Two other very important rules are:-

1) Any tax benefits will be reversed if you become resident for UK tax purposes within 5 complete tax years of gaining benefit from being non-resident.
2) You only become none resident during your first full tax year. This means that you must be resident before April and the tax benefits will not commence before 6th April. For example, if you become resident in January and sell a UK property in March of the same year then you would be taxed as a UK resident. However, if the sale is not completed until May of the same year you would be taxed as a non-resident.

Also note that once you have established residency in Malta you are free to spend as much time as you wish, anywhere in Europe, except for the UK. This is because EU borders are open. There are no immigration passport checks when you fly to other EU countries from Malta. Nobody knows you are there, apart from your airline of course!

Some reasons I chose Malta, other than tax: -

1) Spectacular scenery, warm crystal clear water and 300 days a year of sunshine
2) 4,000 restaurants to choose from yet only 400,000 residents, hence strong competition, low prices and high quality
3) Booming economy due to tax initiatives attracting wealth
4) 11th best rated hospital in the world and an excellent NHS system. You can see a Doctor within 10 minutes of walking into a surgery without having an appointment
5) Rich in culture and heritage, inhabited by man for 7,000 years
6) We drive on the left
7) English is one of the two National languages, all locals speak it
8) Low unemployment and low crime rates
9) No Council tax and free rubbish collection six days a week

I trust the above has been helpful?

Thanks again for your generous donation 😀
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PS - you would both remain jointly and severally liable for any mortgages and all laws in connection with rental properties.
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Reply to the comment left by "Mark Alexander" at "08/02/2017 - 09:57":

Thanks Mark for a very comprehensive reply. Personally, being a classic car fanatic, I might find Malta rather restrictive in allowing me to follow my hobby.

You mention using a Declaration of Trust to change the percentage of ownership when the property is held by husband & wife as Tenants in Common. So this could be 1% husband and 99% wife, but could beneficial ownership be completely transfered i.e. 0% husband and 100% wife?

Could this also be used for 2 non related people or does Capital Gains tax then become payable?

we saw a busy 'classic car' meet, which is apparently held every Sunday, while we were in Malta - I have a couple of pictures taken from the bus as we passed

Hello Mark

Brilliant.

I am very impressed with such a detailed response which I find exceedingly helpful.

I will have a good long think about this.

Jane

Reply to the comment left by "Robert Taylor" at "08/02/2017 - 12:06":

Hi Robert

As D D has said above, there are plenty of classic car enthusiasts in Malta. There are currently 100 classic cars on display at Malta Classic Car Museum >>> http://www.classiccarsmalta.com/

With regards to Declarations of Trust, the percentage of beneficial ownership split can be anything so long as it adds up to 100% in total.

Transfers between spouses are exempt from CGT but transfers between anybody else, including other immediate family members are not.

However, there are several tax planning tools for single landlords to consider without incurring CGT or emigrating to Malta to avoid it. I share the appropriate forms of planning with my private consultancy clients - see >>> https://www.property118.com/optimal-tax-planning/91857/
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@Mark

Just digging deeper a little on something you said..

"...you have established residency in Malta you are free to spend as much time as you wish, anywhere in Europe, except for the UK. This is because EU borders are open."

I'm curious as this goes against some advice I was given recently from a Spanish tax advisor.

If I was to spend more than 183 days a year in Spain I would be classed as a resident of Spain and must declare any assets worth more than 50k EUR held outside the country to the Spanish authorities under Modelo 720 designed to target tax evasion.

Assets include bank accounts, property and other movable assets such as shares, life insurance policies and annuity income.

I was also told Trusts are not recognised under Spanish law, and the Spanish are very aggressive in chasing beneficiaries that use offshore companies as a tax planning strategy.

I am still seeking advice on this

Reply to the comment left by "Stuart " at "08/02/2017 - 15:53":

That sounds like a good reason to choose Malta rather than Spain!

Reply to the comment left by "Stuart " at "08/02/2017 - 15:53":

Hi Stuart

I think your Spanish adviser is right.

What part of what I said leads you to believe I would disagree?
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Reply to the comment left by "Seething Landlord" at "08/02/2017 - 18:15":

Indeed, but there's nothing to stop you owning a "holiday home" in Span and visiting for 180 days a year 🙂

You could also spend a similar amount of time in any EU Country, e.g. Eire, France, etc. Obviously there are only 365 days in one year!
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