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As has been well publicised, changes are afoot to the taxation of high value UK residential property held by non-natural persons. This legal update seeks to consider the preparations that should now be underway, and some factors to take into account when planning restructuring in early 2013.
To recap briefly, it is proposed by the UK Government that:
a) Stamp Duty Land Tax is charged at 15 on the acquisition by non-natural persons of UK residential properties costing more than £2m;
b) an annual charge is levied on non-natural persons who own UK residential property worth £2m or more; and
c) a Capital Gains Tax charge is levied on the disposal of UK residential properties worth more than £2m by a non-resident, non-natural person or a disposal of shares or securities in a company holding such property by a non-resident person.
Whilst the changes were proposed in the March 2012 UK budget, and the Treasury consultation on the majority of the proposed changes, entitled "Ensuring the fair taxation of residential property transactions", is now closed, draft legislation will not be published until 11 December 2012. Until the final legislation is published, British Virgin Islands ("BVI") companies with interests in UK residential property, and their tax advisers, are hesitant to take properties out of a corporate holding structure (now known as "de-enveloping").
However, it is recommended that no time is wasted in making preparations for the immediate and medium term restructuring that seems likely to be required for many BVI companies holding UK residential property, once the legislation is in final form. Advisers should now be checking which clients are likely to be affected, encouraging clients to review their corporate records and registers of directors, members and mortgages and charges, to ensure these are up to date to avoid delays in restructuring, and carrying out valuations of UK properties. Companies should make sure they are poised to carry out any restructuring required. The public records at the BVI Registry of Corporate Affairs should be updated if, for example, old mortgages and charges are still registered.
Where property holdings are subject to mortgage finance, refinance options will need to be investigated.
It is widely expected that the first quarter of 2013 will see a large number of voluntary liquidations, with a distribution in specie of the property, as a first step in de-enveloping and restructuring. It is timely that the BVI has, this month, enhanced its legislative regime for voluntary liquidations, but some of the changes do mean that clients who require their holding company to commence liquidation and distribute the property before 6 April 2013 will need to start the process in good time.
The commencement date of a voluntary liquidation is now the date on which the notice of the liquidator's appointment is registered by the BVI Registrar of Corporate Affairs (not the date of appointment). Liquidators must arrange the filing of that notice within 14 days of their appointment.
Significantly, connected persons may no longer act as voluntary liquidators, and so directors, former directors, members, family, affiliates, and trust company employees who have been involved in the management or finances of the company may no longer act as liquidator. An independent person, or a professional insolvency practitioner, will need to be identified and engaged.
The liquidator will have new statutory obligations which include taking steps to advertise his or her appointment in the company's place of business, or the jurisdiction where the liquidation is most likely to come to the attention of potential creditors, in addition to advertising in the BVI. The time frame for the publication of those notices and advertisements should be considered and managed, in order that the liquidator can be comfortable with declaring an interim distribution of the property before the completion of the liquidation. The liquidator will need to be given access to the company's records showing a full and accurate view of its transactions, assets and liabilities.
Where there is current borrowing on the property and registered security, thought will need to be given in advance to the process for discharging this security and for the owner to take new finance and grant new security following the distribution. The pace of the refinancing process should not be underestimated.
Alternatives to liquidation and distribution should be considered. If timing becomes an issue tax advice should be sought as to whether it would be appropriate to redeem shares in consideration for a transfer of the property.
The window for commencing a liquidation and being in a position to distribute the property by 6 April 2013 will be relatively short, and liquidations should commence by early February 2013.
Maples and Calder has a network of liquidator contacts in the BVI and experience in advising on restructurings and liquidations at every level. We have agreed standard documents and procedures with a number of liquidators. We can work with UK advisers and their client companies to proactively manage the timetable to ensure tax year deadlines are met cost effectively and smoothly.
Please note that Maples and Calder is not qualified to advise on matters of UK law and we recommend that UK law advice is sought in connection with any restructuring arising out of the proposed changes to the UK tax legislation referred to in this update.
If you would like any further information, please speak with your usual Maples and Calder contact or