Many offshore investors have historically made use of company structures to avoid inheritance tax. However, the UK government has recently decreed that from April 2017 property in the UK, whether directly or indirectly, held by foreign domiciled persons will be liable to UK inheritance tax This means they look through the structure to see who owns the property. Company structures include a trust or a hybrid structure using both a trust and a company.
Given that the principal benefit of using a company is being removed, certain investors may wish to review their current ownership structure. There may be capital gains tax issues in doing so, but if they are caught by ATED (the annual charge will affect properties from £500,000 from 2016) it may worthwhile to do so. A brief discussion with a qualified tax adviser would certainly be appropriate.
The government did not stop with inheritance tax. The allowance for wear and tear on furniture used in rental properties is going to be withdrawn in 2016. The government will release further information on this in due course.
The ongoing shortage of houses, planning problems and rising prices
The basic laws of supply and demand means that when there is limited supply demand increases and in the case of property this means rising prices. For a number of years we have been telling our clients that prices in the UK will rise over the medium to long term for this simple reason. The UK government estimated in 2014 was that 240,000 to 245,000 additional homes would be required each year to 2031 in order to meet newly arising demand and need in England. The following shows the number of houses actually being built:
The main issue holding back house building is the limited supply of land at the right price. Most of the problems have been caused at a local level with councils and communities protecting vested interests and refusing / objecting to planning applications.
The politicians all say that if elected they they will rectify the problem, but the reality is that successive governments have not come up with a solution. The current government is making all the right noises and is planning to overhaul the planning system including
A new “zonal” system, as employed in many other countries, which will give automatic planning permission on all suitable brownfield sites, removing unnecessary delays to redevelopment.
Power for the government to intervene and have local plans drafted setting out how housing needs will be met when local authorities fail to produce them, and penalties for those that make 50% or fewer planning decisions on time.
It all makes for good politics and the ultimate goal is an admirable one. However, whilst many people in the sector welcome the proposed changes, there remains scepticism that it will produce the desired result. There is a Chinese proverb which says ‘The sky is high and the emperor is far away’ and it certainly applies when it comes to planning in the UK. Policy statements from the central government are all very well, but it is the implementation at a local level that is the key to getting anything done.
Even with the best intentions, nothing is going to happen which will solve the problem overnight. There will be a shortage for many years to come and this will continue push up prices. Its the basic law of supply and demand and creates a sound opportunity for property investors.