Thank you for your time to read my post. I have read through various TaxationWeb articles and many served as eyeopeners. Yet only reading various scenarios does not give me enough material nor do I possess enough experience to tackle my own case. In the rest of my post I will describe my current dilemma (let me know if anything seems to be missing) and it would truly benefit if you could share your opinion on it. Your information would sharpen my knowledge and give me insight prior to taking this matter to a Tax Advisor (not cheap).
Facts:
- My uncle lives in Portugal on an estate owned by a company based in Jersey (RODA LIMITED (setup in the 90's)) of which my uncle is ultimate controlling party.
- RODA LIMITED (RODA) is managed by a company in Jersey.
- Shares are held in nominee.
- My uncle's will states that he wants me to inherit the estate.
- The latest financial accounts (cut down to what is important):
Financial assets (pounds, stated as historical cost)
Freehold property 100.650
Financial liabilities
Loan payable 150.300 - Loan is from the company to my uncle.
- Loan has been incremented with the management fee each year.
- I am living and working in the UK.
- I have never bought property before.
- Current minimum market value of property: 680.000 .
Goal B: Minimize (or remove) current management fee costs (> 6000 a year currently).
My personal goal with the estate: Preserve and maintain it, and keep it in the family for generations to come (it may partially be put up for rent).
With the current law, from what I understand, the following applies:
- Jersey knows no Capital Gain Tax.
- Jersey has no double tax treaty with Portugal but a TIEA.
- Jersey has a Land Transaction Tax Law that applies to both real estate transactions as well as transactions of shares of companies that hold real estate assets.
- 1. Becoming ultimate controlling partner now.
- 1.2. And/or partially gifting shares
3. Setting up a trust
Becoming ultimate controlling partner would mean my uncle transferring 100% of the shares. This transaction would be seen as selling property due to the Land Transaction Tax Law.
This jersey law states that the LTT would be calculated over the worth of the shares. For this the current minimal market value minus the historical cost minus the loan would apply. Bringing the value of shares to 429050 pounds.
This value is below the First Time Buyer threshold, meaning that the LTT would be: 4567 pounds, according to this https://www.gov.je/TaxesMoney/LandTrans ... Rates.aspx .
Scenario 1.2:
A scenario would be for my uncle to partially gift shares, in this case since gifts are not taxed in Jersey:
- Is he allowed to gift shares? If so how much?
- This would reduce the LTT tax to be payed once the rest of the shares were to be transfered.
Possible effects of such transaction on my uncle:
1. No CGT in Jersey.
2. And no CGT in Portugal, according to the following article: http://www.portugalproperty.com/buying/ ... ownership/.
A few questions regarding potential effects of such transaction on me:
1. Should there be shown proof of a transaction when buying an estate or shares, or does merely transferring it to my name and paying the necessary tax suffice?
2. Considering I am living and working in the UK, what impact would possessing shares in a Jersey company have on me? Reading the double tax treaty between Jersey and the UK, nothing major seems to stand out, in fact were the company to be earning money:
3. Do other laws apply depending on when the company is setup (so this company was setup in the early 90's, would that impact what one can do with the company?) ?An individual who is a resident of the United Kingdom shall be exempt from Jersey tax on profits or remuneration in respect of personal (including professional) services performed within Jersey in any year of assessment if:
(a)he is present within Jersey for a period or periods not exceeding in the aggregate 183 days during that year; and
(b)the services are performed for or on behalf of a person resident in the United Kingdom; and
(c)the profits or remuneration are subject to United Kingdom tax.
Scenario 2: Inherit estate (shares in company)
As far as I know Jersey knows no Inheritance Tax.
Portuguese law states that through a corporate structure inheritance laws are applicable where the corporation is domiciled. Therefore, no tax would have to be payed.
Scenario 3: Setting up a trust
I have been advised to setup a trust. It sounds like it could perfectly suit my personal goal, although I have no idea whether it would be tax efficient.
In all of the scenarios above the management fee is still significantly higher than the local tax on the property we would pay if the property was not in the company.
I will keep adding updates to this post as I find more information. I am looking forward reading your views on this.
Best regards,
Kenneth O. Knapp
