Real Estate Investor Magazine South Africa October 2018 | Page 58

UNITED KINGDOM
What you need to know
about estate planning for
offshore property
BY GEORGE RADFORD
F
or South Africans who have invested in offshore prop-
erty, estate planning can be challenging given the legal
and tax frameworks of another country. Therefore, it is
vital to know what to expect and how to mitigate financial risk.
“Taxation can be a complex business even if you are liable to
pay in only one country,” says George Radford, Head of Africa
at IP Global. “When you bring multiple jurisdictions into the
picture, it can become even more complicated.”
One of the more common offshore investment destinations
for South Africans is the United Kingdom, which has the
appeal of being in a similar time zone with direct flights and
no restrictions on foreigners buying property, provided they
can afford it.
Radford says as part of his firm’s end-to-end approach to
property investment and management, they partner with tax
experts at HW Fisher & Company based in the UK. “We
guide our clients through the legal and tax implications of
purchasing property abroad,” he explains.
“In the UK we charge inheritance tax, which is a death
duty payable on the assets that someone owns when they die.
The scope of inheritance tax depends on a person’s domicile
– which is a legal concept that extends beyond the simple
concept of tax residence and looks where your permanent
home is,” says Jamie Morrison, a partner at HW Fisher &
Company. “If someone is UK domiciled, they are liable to
pay death duties on their worldwide estates, even if they are
located in another country.”
If the property owner is domiciled in another country, he
says that they are potentially exposed to death taxes in the
UK on their UK situated assets. “A South African domiciled
person who owns an asset in the United Kingdom -- whether
it’s cash in a bank account or property -- is potentially exposed
to taxes here,” Morrison explains.
He points out that under international tax principles,
double taxation is allowed – which means that you can be
taxed in both the country you live in and the country in which
you own property – by a principle called “source vs. residence”.
“So, where real estate is concerned, the jurisdiction where
the property is located – in this case, the United Kingdom –
gets primary taxing rights, or the first bite of the cherry. South
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OCTOBER/NOVEMBER 2018 SA Real Estate Investor Magazine
Africa will then tax the same asset, but the amount taxed can
be offset under double taxation relief, depending on the exact
wording of the Double Tax Agreement,” Morrison says.
Countries share information through the Common
Reporting Standard, which means that the government will
always be aware of foreign-held property. However, if a foreign
investor is considering purchasing property in the UK and
wants to make the inheritance of the property as affordable as
possible for their children, they could go one of two possible
routes.
 “If the intended beneficiaries are of age and sound mind,
then the investor could buy the property in their names. The
second approach is to take out a mortgage at the point of
purchase, which reduces exposure to tax, as inheritance tax is
only charged on the equity value” says Morrison.
 Explaining the tax breakdown, Radford says the estate of
a deceased person in South Africa is subject to 20% Estate
Duty, after taking into account an allowable deduction of R3.5
million against the net value of the estate. If the estate is worth
more than R30 million, the inheritance tax charged on the
dutiable amount is 25%.
  “In the United Kingdom, the current inheritance tax
threshold is £325 000 per person and spouses can transfer the
tax free amount between them. There is an enhanced allowance
available but this only applies if your estate contains your main
family home. Everything above the threshold will be taxed at
40% on your death,” Radford says.
 He adds that although the UK example may be illustrative
of how these things could be handled in a foreign country,
there is no symmetry in how death duties are settled in
different jurisdictions across the globe.
  “It’s clear that taxation is a significant factor for any
investor, and the implications of ownership for the next
generation should always be considered when making the
decision to purchase an offshore property,” concludes Radford.
SOURCE
IP Global