Taxing questions

If you want to try to get a sense of the intricate offshore “vehicles” used by real estate investors and developers to evade/avoid/minimise tax, then it’s worth looking at this article on the Candy Bros in the Guardian.  Ironically it doesn’t look like they made that much money on the transaction given borrowing and construction costs – even if no Stamp Duty was paid on the land purchase.

The bigger picture is that a lot of unlisted, private real estate funds (mainly limited partnerships and unit trusts) – which have grown rapidly in the last two decades – managed by UK investing institutions have been domiciled in Jersey, Guernsey, Isle of Man, Luxembourg and Dublin. I remember one real estate fund manager describing how he’d regularly bump into his City of London  fund management peer group at City Airport in mid-week catching dawn flights to Jersey for their monthly partnership/trust meetings (one of the rules is that they had to makes management decisions etc. in Jersey).

This goes back to the old double taxation problem. UK tax exempt pension funds and insurance cos tended to find it more tax efficient to invest directly in real estate because of the double taxation problem involved in investing in real estate companies.  The real estate company was taxed on rents and capital growth and then investors in that company were taxed on dividends and capital growth.  The introduction of REIT structures has helped to mitigate that problem for real estate companies but it remains more problematic for unlisted, private funds.   Getting the tax structuring right for these funds tends to be a crucial issue.  So, day-trips to Jersey are likely to still be needed.


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