Loading...

Tag: heirship

UK Property Tax Overview

With the onset of Covid 19, many people are looking more closely as to where they invest their money. Traditionally the stock Markets have been the first port of call for most people, but with a downturn in the Global economy due to lockdowns, causing uncertainty, many people are looking at physical assets such as Property for longer term investment, and in my opinion there is no better place to look for property investment than London.

Pent up demand has built up over several years due to the uncertainty around Brexit, and once this issue looked like it was settled, interest and activity in the property market boomed. Covid 19 slowed things down again, but interest in the property market never stopped, and post lockdown the opportunities available in the market look very attractive. On top of this for overseas buyers, we have a period until April next year before the overseas Stamp duty increase comes into force, the reduction in current Stamp duty, and an extremely attractive exchange rate to Sterling, especially so for Thai Based investors holding Baht and/ or USD.

Tax on UK Assets.

Before the Overseas stamp duty rate of 2% commences in April 2021, Overseas buyers are treated exactly the same as local buyers, in that they will pay the same duties and taxes and can own the property outright with all the benefits that entails. The downside of this is that the property is subject to the same taxes locals will pay, including Inheritance Tax ( death duty) at a rate of 40% on all UK based assets in addition to the zero rated band of GBP 325,000, Capital Gains Tax which depending on value taxes any investment gain on the sale of the asset at a rate of 18% or 28%. In addition to this, there is the cost of Stamp Duty Land tax on Purchase, which is mostly tiered, depending on the purchase price. However, the Buy to let/second property rate of 3%, and the overseas buyer duty, will be calculated on the full property value. If the property is rented out, then income tax may be payable on rental income.

Even with the above taxes, the UK market, and especially London, is an extremely attractive place to invest, with an excellent track record over many decades of growth, a buoyant secondary and rental market, and one of the best legal systems in the world, ensuring you know exactly what you are buying and what will be included. Buying through one of the main developers will reduce construction risk to a minimum if buying off plan. High rates of Capital growth can be acheived over the medium to longer term, and many people will plan to utilize the property for their own use, giving a UK base for them and their families. However, there are many steps that can be taken, to ensure that the Capital growth, and the full value of the of Property can remain in the hands of yourself and eventually your family in the event of a sale of the property, or the death of the owner. Further to this, depending on circumstances, we can ensure that the correct SDLT has been paid, and if not a significant sum could be refunded from Stamp Duty Land Tax paid within the last 3 years or a reduction in current Stamp Duty that is due to be paid. Experts will ensure all allowances have been utilized to reduce this amount if possible and will only charge if they are convinced a refund can be obtained.

Tax Efficient Investing in the UK Property Market

If you are planning to hold the funds to be invested in the UK market for a long period of time and potentially to pass the assets down to your children,  or you currently own property in the UK and wish to pass this to your beneficiaries in a tax efficient manner, whilst utilizing the property , for income in the meantime, then there are some extremely beneficial ways for you to achieve this. UK based assets invested through, or assigned to these HMRC regulated schemes, have the benefit of being removed from your Inheritance tax liability. For a property worth GBP 2 million, this will save the estate around GBP 670,000 OR 26,000,000 Baht. In addition to this, as long as the funds remain in the scheme, even if it is used to purchase additional or upgraded assets, the sale of the asset will not be subject to any Capital Gains tax, allowing the total amount of gain to be used to purchase the new asset.

QNUPs

Qualifying Non-UK pensions Legislation was established by Her Majesties Revenue department in 2006, and in 2010, the Legislation was reformed to make any assets invested in the scheme by the pension holder free from both Inheritance and Capital Gains Tax. So long as the scheme meets the Pension rules in the UK, and the scheme is set up to provide an achievable income in the future, for the pension holder, any value of asset and many different kinds of asset classes can be held including Property. This will work best when the property is mortgage free, but in some schemes borrowing can be arranged if needed. Assets can be purchased directly by the scheme, or existing assets can be assigned to the scheme, although this can incur a Stamp duty fee in some cases.

This is a highly effective and tax efficient way to invest in the UK, if you are happy for the funds to remain in the scheme, and plan to invest over the longer term. It does allow asset exchange and will provide an income which can be taken from age 55 onwards. It will, by following the Pension rules allow assets to be passed on to beneficiaries and for these to be sold and reinvested without the Inland revenue taxing a large portion of this asset.

This will not meet the requirements of every investor looking at the UK Property Market, but for high value properties it can be a very effective way to secure the asset in the right circumstances.

 

Lee Stevens, Area Manager

By bca52FINANCIAL COMMENTARY, Property Blog No comments yet

Key-Person Insurance for Your Business

We spend so much time and effort covering the basics of insurance, health, car, home & contents, that a majority of the time we totally miss areas that are the most important. One of these being Key-Person Insurance or Shareholder Protection.

Key-Person Insurance

So you’ve built the business, operating profits are strong, but you’re worried that most of that profit is generated by a small number of employees/directors, you may be in a position that you or a colleague are the main breadwinners of the firm, even to the point that the knowledge and experience that generates profit is also with a select few.

How could you cope with this within the firm if one of these individuals had a sudden death or even extended or permanent incapacitation? How do you cover the cost of this missing person? This could be specialist recruitment costs to find a replacement. How do you cover the revenue loses while adjustments within the firm are made? Losing this individual could also have a major effect on terms within any debt liabilities, are you in a position to cover any early recall of this debt?

There are so many uncertainties that need to be covered and, using Keyman/Shareholder Protection you can make sure that the firm can continue as a going concern through these issues or wind the company down in a calm and orderly fashion if this is what the remaining partners and beneficiaries wish.

Losses To Cover

  • Costs for temporary replacements when Key Person can no longer work, this could also cover costs of longer term recruitment and training of replacements staff/directors.
  • Cover to protect profits/revenue. Lost sales income, losses from delayed or canceled business projects. Loss of skills or intellectual property.
  • Cover business loans or any debt liabilities that the Key-person/Director is a Guarantor of.
  • Also consider cover to protect shareholders – partnership interests.

Who To Cover

It’s essential to cover anyone within the business who has a major impact on the direction of the company and is directly connected to the financial success of the company. This could be those who have direct responsibility for intellectual property, specific skills, experience and leadership roles within the firm. This could also be your lead sales person if that individual is generating considerably more revenue than the rest of the sales team.

Who would have a serious impact on the firm if you lost them. Company directors, IT specialists, Managing Directors and Head of Product Development. Assess the individuals and what could be the potential loss or disruption to the company if suddenly they were missing.

Calculate A Value to the Key-Person

Here we need to think about loss of revenue/profits, how much to replace with temporary or permanent staff, also costs to cover any debt or debt restructuring. below are tow simple ways to calculate basic coverage.

Multiple of Salary Method

The multiple of salary method is very simple – it is usually based on a calculation of either five or ten times the key person’s salary. Although simple to work out, it does have drawbacks, including: the salary may not reflect the person’s value to the company, salary is not usually the total earnings of a key person – total remuneration is often made up of other benefits, such as pension contributions.

Proportion of Profit Formula

The second method is the proportion of profit formula. Again, this uses the key person’s salary but also takes into account profits and the time it might take to recruit a replacement. The formula is: (Salary x last year’s profit x number of years to replace)/Total salary bill

Policy Ownership

The key-person insurance policy can be owned by the Company, the individual covered or by a third party, most commonly known for the company to hold the policy. In some jurisdictions the tax issues need to be considered on the most tax effective way to hold the policy.

Advantages

  • Lump sum paid to cope with loses.
  • Able to buy deceased partner/directors shareholding.
  • Premium paid can be a business expense in some jurisdictions.
  • Term plan, premiums remain at set amount.
  • Safeguards beneficiaries/family from business shocks or cycles.

Disadvantages

  • Some countries have no exemptions from income Tax on a claim amount or maturity.
  • Policy surrendered amount endorsed could be taxed in hands of key-person as profit in lieu of salary.

The above is a basic overview of what to consider when you are running a business within the SME world. There is so much more to consider when looking at the level of cover, how to hold the policies, whether a trust would be suitable, how to cover a number of partners within a company and how to structure those policies.

For more information or to discuss in more details please contact enquiries@businessclassasia.com and visit our page for businesses.

By bca52FINANCIAL COMMENTARY No comments yet
Previous Next

An Evening With Business Class Asia, 1st August 2019

An Evening with Business Class Asia. 1st August 2019

Protecting You, Your Family and Your Future.

Many thanks to all who attended, we hope you found the evening informative and helpful. Also thanks to Lee Stevensfor the presentation covering how to plan effectively while living and retiring offshore. Topics covered the essentials on having an up to date Will, Protecting your Assets and Estate through Trusts and Tax Efficient Retirement Planning, the evening also covered briefly health and life protection for the unexpected emergencies in life.

Thanks also to Pacific City Clubfor the fantastic venue and refreshments, also your help with organizing the event. For future events please follow us and if you need information on the subjects covered please drop an email to

wills estateplanning retirementplanning iht pensionplanning retirementincome successionplanning BCA thailand

By bca52FINANCIAL COMMENTARY No comments yet

Protecting you, your family and your future

Many think wealth management is simply a question of saving as much as you can, managing those assets to provide a comfortable retirement and being heavily insured to protect the family, think again. With the introduction of the Common Reporting Standards slowly being accepted and adopted by more countries, Estate Planning is becoming much more crucial to Families long term financial planning in all jurisdictions.

Producing a long-term financial plan to meet your future costs of both the expected and the unexpected is a core part of financial planning. There are also just as equally more important considerations in planning for the long-term financial security of a client, more so clients with families.

Estate planning:

Estate planning is essential to ensure that death taxes are minimized and also that the estate is smoothly passed to intended heirs. As a wealth manager, I meet and work with people whose circumstances are hugely different. Many clients have multiple bank accounts and investments, which can be spread across different countries and continents for many different reasons. It is often necessary to restructure and simplify these arrangements to ensure a smooth transition to intended beneficiaries.

Investment vehicles offered by Financial Institutions can be very flexible and will sometimes incorporate all of a client’s financial planning needs, including long-term tax planning, but with CRS this now makes some of these vehicles less estate friendly. However the personal circumstances and long term plans of individuals can use additional financial planning tools to ensure maximum asset protection.

Tax planning:

With the start of Common Reporting Standards (CRS) coming in to effect this year long term tax planning should be a core consideration in any form of financial restructuring. CRS allows Governments to collect information on Tax residents who hold financial accounts in other jurisdictions who have signed the agreement. The reporting covers individuals, companies, including those utilizing trust or company structures. A person living outside of their home country may be currently free of the burdens of taxation & to some extent reporting, but future changes in personal circumstances may mean that tax could once again become an larger issue. This applies not just to those who are planning to return home but also, in some cases, to those who do not plan to return to their home countries.

Inheritance Tax:

A very dividing subject, of all the forms of taxation Inheritance Tax is probably the most uniformly despised. It is a tax on the assets of a deceased person, assets accumulated from income and gains that have usually already been taxed and so in a very real sense this represents double taxation. For those countries that continue to levy this form of tax, it is politically challenging, to say the least, to abolish a tax that many perceive as a tax on the ‘rich’ and so it is probably here to stay. Unfortunately the rules regarding Inheritance Tax are not uniform amongst those countries that still collect it.

The main goal of Inheritance Tax planning is to legitimately reduce the value of the residual estate of the client. As taxable thresholds, tax rates and gift tax provisions vary considerably between countries, the planning strategies will be highly personalized.

Probate:

The legal procedure for obtaining the release of an estate and distributing it to the beneficiaries, this can be a time consuming and frustrating process at a distressing time. It is important to understand that for some countries, until Inheritance Tax is paid and in full, the estate cannot pass to the rightful heirs. The use of insurance as a tool can help bridge the gap, while assets are tied up through probate. Probate to some extent can be avoided by using an appropriately structured trust or foundation as part of your estate planning.

Forced Heirship:

Some countries, especially in Europe, have laws that prevent disinheritance of children and spouses. The effect of this is that a will can be challenged and overturned if it does not meet the minimum statutory legacy requirements. Such laws can only be applied to the legal assets of the deceased. Assets that have been legitimately transferred to a legal trust or foundation are no longer the property of the deceased and so can be placed beyond the reach of such laws. The assets placed into a trust or foundation can then be applied in accordance with the wishes of the Settlor, for the benefit of those selected by the deceased and not those nominated by the Government in their country of origin or death.

Recording Your Wishes:

There are no excuses not to have a will. It eliminates misunderstandings, ensures that your wishes are carried out but more importantly it avoids family strife. In many countries, Western or otherwise, if you have made a will and subsequently get married, that existing will becomes legally invalid and so you need to draft a new one. Any major change in your personal circumstances should bring about a major review of your existing will.

Governments will continually look to increase tax revenues from residents and also non resident citizens, planning within these rules is crucial to make sure your not paying more than your share, but also to make sure you can protect your assets for the coming generations.

Business Class Asia is a leading financial planning and trust solution office which serves international clientele in Southeast Asia. Visit our page on personal wealth protection or contact us to schedule an appointment.

By bca52FINANCIAL COMMENTARY No comments yet