The use of offshore companies to purchase real estate

 

Since our establishment in 2005, Turnstone (Isle of Man) has acquired real estate, including both residential and commercial property, in numerous countries for our clients. For each acquisition, a company has been used, and the purpose of this brief article is to examine the benefits of using a company to buy property.

When contemplating an investment in real estate, the investor has the option of either acquiring the property in their own name or using a company. In some countries there may be legitimate reasons for holding property personally, owing to, for example, restrictions which disallow corporate ownership or tax advantages for holding property personally.

However, the personal ownership of property can be highly disadvantageous compared with using a company. Firstly, in the event of the owner’s death there may be complications associated with the transfer of the property to the heirs – the granting of probate is often required, which can be an extremely complicated, protracted and costly process, which in turn can exacerbate the emotional stress that the heirs have already suffered. The probate process itself is dependent on the deceased owner having a valid and provable Will; if there is no Will, dying intestate will trigger the intestacy laws of the country in which the property is located, which consequently results in further transfer delays and costs.

If the property is located in a country or area where a civil code legal system, or sharia law even, applies (eg, Dubai), the holding of property personally becomes even more hazardous on death.

Furthermore, if inheritance taxes apply in the respective country, the cost of transferring the property to the new owners can be considerable.

All of these problems can be avoided by using a company to own the property since, in the event of death, there will be no need to transfer the property, which will simply continue to be held by the company, with the sole action required being a redistribution of the company’s shares.

A company can also be more advantageous from a tax perspective during the owner’s lifetime, with the avoidance or reduction of income and capital gains taxes, compared with personal ownership; where borrowing is required for a purchase, Banks are more likely to lend where a company is used, rather than to an offshore resident personally.

Which jurisdiction should one select for their property company? As a general guide, the country should have a long track record of political stability, a benign tax regime and offer a flexible, easy-to-use corporate vehicle. The Isle of Man, certainly, offers all of these and is Turnstone’s default recommendation for a company; we can however, incorporate and manage companies in numerous jurisdictions and hold property through these.

Many of our the properties we manage are based in London and are held by Isle of Man companies (it should be noted that there have been significant recent changes to the UK property landscape, although provided the purpose of acquiring UK residential property is investment / buy-to-let, there may continue to be income and CGT advantages through using companies), although we also hold properties in the US, Mauritius and South Africa; we have several clients also looking at other EU countries, including Ireland and Germany, and we are well-equipped to assist for such requirements. For certain EU countries however, such as France, Portugal and Spain, the use of companies can be prohibitive from a tax and logistical perspective, and personal ownership may be preferable.

It is important to note that if a company used for owning property is itself held personally, then there are disadvantages associated with that, in particular since many countries where clients reside have ‘Controlled Foreign Company’ legislation, which results in the individual shareholder being taxed in their home country on the income and gains of the company. A simple solution is to establish an Isle of Man Trust to own the company, with the Trust itself bringing multiple asset protection, wealth preservation and estate planning benefits. Turnstone can again help in this regard.

Finally, whilst this article has briefly explored the benefits of using companies to own property, appropriate advice and planning may be required for each property location and transaction on a case-by-case basis – Turnstone is able to source such expertise where required, through its extensive international network of trusted advisors.

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