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Sunday, 7 October 2012

Isle of Man – quick and cost effective property fund establishment

There are real advantages to structuring ownership of UK situs real estate though an offshore centre. This is especially true where the beneficial owner is an investment fund or a non UK resident and / or non domiciled individual.

Unlike most jurisdictions – in the UK there is no de-facto tax charge arising on gains  made on the disposal of UK investment property (although there are anti-avoidance provisions aimed at trading in land) – so an offshore structure offers clear benefits.

The Isle of Man or the Channel Islands are the usual jurisdictions of choice for establishing such structures as a result of their proximity to the UK – historically while the Channel Islands have enjoyed the lions share of this type of work, the Isle of Man actually offers some clear advantages over the Channel Islands in this area.

Specifically, in addition to the common characteristics of 0% tax, no capital gains, IHT or stamp duty, the Isle of Man offers additional key advantages;

(I) VAT – Isle of Man is far more convenient. Being a part of the UK VAT area but enjoying its own administrative function allows VAT registration for qualifying property companies and funds within 7 days of application. A far cry from the often nightmare administrative process sometimes endured by Channel Islands entities in the hands of the UK VAT authorities.

(ii) Corporate Vehicle – the Isle of Man offers greater convenience and flexibility. The Isle of Man Companies Act 2006 provides a highly flexible corporate entity with minimal red tape and filing requirements, where corporate directors are permitted, with an ability to purchase redeem or otherwise acquire its own shares, and an ability to declare and pay dividends and make capital distributions subject only to meeting a statutory solvency test.

(iii) Speed – in the case of closed ended funds – no regulatory approval is required in the Isle of Man. Middleton Katz provides services to several UK listed companies under its Corporate Services class 4 financial services licence.

From an administration point of view, clearly I am bound to favour the Isle of Man, and a firm of Chartered Secretaries in particular (wink) , however, generally, I do believe that the Isle of Man offers better value for money than its Channel Islands competition – although this clearly depends on the choice of service provider.

The Channel Islands still casts a long shadow when it comes to UK practitioners thinking about which offshore island to base their clients fiduciary structure in but on closer analysis – the logical choice between the two when it comes to property structures is clearly weighted towards the Isle of Man’s favour.

By Martin Katz