real estate holding structures - eversheds-sutherland.com€¦ · create #1: real estate holding...
TRANSCRIPT
CREATE #1: Real Estate Holding Structures
1
1
CREATE Workshop #1Real Estate Holding Structures
2
• Holding structures: what are we talking about?
• Overview of structures:• typical structures
• commercial benefits and issues
• who likes what
• Jargon busting
• Budget update
• Changes and trends
Setting the scene for today
Eversheds LLP | 23/03/2016 | CREATE Workshop #1
CREATE #1: Real Estate Holding Structures
2
3
Direct and indirect holding
DIRECT
Investor holds property in own name
INDIRECT
Investor holds an interest in a vehicle, which holds the property
Investor Investor
VEHICLE
UK Property UK Property
Eversheds LLP | 23/03/2016 | CREATE Workshop #1
4
Acronyms!
Do you know your ELPs from your LLPs?
See handout.
Eversheds LLP | 23/03/2016 | CREATE Workshop #1
CREATE #1: Real Estate Holding Structures
3
5
Let’s simplify this!
Interest restriction from 2017
Attack on tax avoidance
The court of public opinion
IncreasedRegulation
New structures, new regimes
FATCA
Solvency IIAccessing retail
PPG and ATP cases
REITs
New forms of finance
EUUTS, PAIFS, ACS
Qualifying private
placement
Pensions changes
State Aid
CGT and non-residents in Resi
BEPS
ATED and SDLT
Diverted profits tax
Seeding reliefs
Disguised investment
management fees
ISAs
Infrastructure
Transparency
Eurobonds Jurisdictions
Common Reporting Standards
Student
SDLT
Joint ventures
Dividend tax changes
Extra 3% SDLT
PRS, BtL, BtS, BtR
Tax rates and use of losses
AIFMD
Care homes
Indirect Real Estate
Eversheds LLP | 23/03/2016 | CREATE Workshop #1
6
Why do it?
Limited liability
Facilitates finance
Privacy
Indirect real estate investment
Globalisation
Facilitate joint ownership
Liquidity
Flexibility on exit
Optimising returns
Tax
Eversheds LLP | 23/03/2016 | CREATE Workshop #1
CREATE #1: Real Estate Holding Structures
4
7
Factors that influence structure
PARTIES
Holding structures
ASSETS
BUSINESS PLAN
OPERATIONAL REGULATION
RETURN
SOUGHT
EXIT
Eversheds LLP | 23/03/2016 | CREATE Workshop #1
8
Holding structures
Typical indirect holding structures
Eversheds LLP | 23/03/2016 | CREATE Workshop #1
CREATE #1: Real Estate Holding Structures
5
9
Investor
Onshore company
UK Company
Bank
Property Management
Interest
Fees
Income
Taxable
Gains
Equity Loans
Dividends Interest
Benefits • Easy to manage in UK• Limited liability • Flexible• Corporation tax 20% (17% in
2020)• Stamp duty vs SDLT
Issues • Corporation tax• Profit extraction • Disclosure of significant interest
Who • UK investors• Traders• Investor preference
UK Property
Eversheds LLP | 23/03/2016 | CREATE Workshop #1
10
Investor
Offshore company
Offshore Company
Bank
Property Management
Interest
Fees
Income
Taxable
Gains
Equity Loans
Dividends Interest
Benefits • No tax on gains• No stamp duties on shares• Privacy – but see consultation• Flexible• Income tax @20% effectively
reduced through interest and other deductibles
Issues • Offshore management• Choice of jurisdiction• Reputation• Risk• Offshore trading/ development• Anti-avoidance
Who• Non-UK investors• Business plan with roll-up of
gains
UK Property
Eversheds LLP | 23/03/2016 | CREATE Workshop #1
CREATE #1: Real Estate Holding Structures
6
11
Investor
Propco/Opco
Offshore CompanyBank
Interest
Gains
Taxable
Income
Equity Loans
Dividends Interest
Benefits
• Split operating and investment business
• Gains offshore, trading onshore• Facilitates sale of holding
company or entities separately
Issues
• Identification of trading
business
• Offshore management
• Admin costs
Who
• Investors with trading business
UK Opco
Trade
Offshore Propco
Lease
Rent
Eversheds LLP | 23/03/2016 | CREATE Workshop #1
UK Property
12
Parent company
JPUT – income transparent: gains opaque
Offshore trustees
Gains
99% 1%
Benefits
• No stamp duty/ SDLT
• Income transparent
• Opaque for gains
• Flexible
• Assists liquidity
Issues
• Need a second investing entity
• Third party professional trustees
• Offshore management required
• Regulatory control/authorisation
Who
• UK tax exempt entities
• Want liquidity
InvestorSecond
unit-holder
Property management
Income
UK Property
Eversheds LLP | 23/03/2016 | CREATE Workshop #1
JPUT
Income
CREATE #1: Real Estate Holding Structures
7
13
Limited Partnership
General partner
Income Gains
Benefits • Flexible and well known• Limited liability for limited partners• Tax transparent for income and
gains• UK management through GP
Issues • Need for a GP, cumbersome• SDLT on sale/changes in
holdings/seeding• Limited partners cannot participate
in management• Liquidity
Who • Onshore investors with UK assets –
long term hold• Institutions• Private equity real estate
Investor 2
LP
UK Property
Investor 1
Eversheds LLP | 23/03/2016 | CREATE Workshop #1
Share of income and gains
Share of income and gains
14
Comparisons: general guide: (commercial)UK Company Offshore company
(Jersey, in other jurisdictions it may be different)
JPUT (Transparent version)
English Limited Partnership
Type of entity Separate legal entity Separate legal entity Not a separate legal entity –unitholders are beneficial owners and trustee is the legal owner
Not a separate legal entity
Type of liability Limited liability for shareholders
Limited liability for shareholders
Limited liability for unitholders
Unlimited liability for general partner (GP) and limited liability for limitedpartner (LP) provided it is not involved in day-to-day
management
Management Onshore Offshore Offshore Onshore by GP
Tax status Tax opaque Tax opaque Generally transparent for UK income tax purposes and opaque for gains, provided it is a “unit trust scheme”
Tax transparent for income and gains
Tax on income/profits in vehicle
Corporation tax at 20%(reducing to 17% in 2020)
Income tax at 20% Transparent for income Partners taxed on incomeaccording to own tax status
Tax on gains in vehicle
Corporation tax at 20%(reducing to 17% in 2020)
None, if managed offshore and no UK trading
As for offshore company Partners taxed on gains according to own tax status
Stamp duty on transfer of interest
Stamp duty payable by purchaser of shares at 0.5% of price
No No SDLT on transfer/change in partnership shares
Interest deduction At company level subject to worldwide debt cap (see proposed restrictions on tax deductibility of interest)
Yes provided wholly & exclusively for property rental business (see proposed restrictions on tax deductibility of interest)
Potentially at unitholderlevel
Rules depend on whether partners are subject to income tax or corporation tax
Eversheds LLP | 23/03/2016 | CREATE Workshop #1
CREATE #1: Real Estate Holding Structures
8
15
Joint Ventures
An introduction
Eversheds LLP | 23/03/2016 | CREATE Workshop #1
16 16
Joint Ventures: general
WHY?
• Pool resources and expertise
• Access to assets
• Diversification
WHAT?
• JV company – onshore / offshore
• JPUTs
• Partnerships
FACTORS INFLUENCING STRUCTURE
• Parties
• Assets
• Return
• Operational
• Regulation
• Exit
ADDITIONAL CONSIDERATIONS
• Alignment
• Decision making
• Deadlock
Eversheds LLP | 23/03/2016 | CREATE Workshop #1
CREATE #1: Real Estate Holding Structures
9
17 17
Why not a trust for land?
• Co-ownership
• Risk:• inadvertent partnership: joint and several liability
• inadvertent collective investment scheme: tax and regulatory
Eversheds LLP | 23/03/2016 | CREATE Workshop #1
18 18
CIS
• Commercial arrangement between economically independent entities
• Joint venture participants share in the control and decision making of the business
• No specific legal or regulatory regime
• Pooling of investment
• Independent third party management with investors receiving the profits
• Regulated
• Exemptions
Joint venture or collective investment scheme?
Eversheds LLP | 23/03/2016 | CREATE Workshop #1
CREATE #1: Real Estate Holding Structures
10
19
Putting it all together
Mixed use site
Eversheds LLP | 23/03/2016 | CREATE Workshop #1
20 20
Putting it all together: mixed use site
Eversheds LLP | 23/03/2016 | CREATE Workshop #1
Road
Resi to hold
Commercial
hold
Commercial
Commercial
Resi to hold
CREATE #1: Real Estate Holding Structures
11
21
Putting it all together: mixed use site
ELP
General partner
Investor Investor
UK Propco
Offshore Co
UK Trading Co
Commercial Commercial Resi for saleResi to hold
Eversheds LLP | 23/03/2016 | CREATE Workshop #1
JPUT JPUT
22
Changes and trends
Eversheds LLP | 23/03/2016 | CREATE Workshop #1
CREATE #1: Real Estate Holding Structures
12
23
Budget update
Eversheds LLP | 23/03/2016 | CREATE Workshop #1
• SDLT:• new regime for commercial property: 5% top rate
• 3% for additional residential properties
• Attack on offshore developing/trading
• Corporation tax reduced to 17% by 2020
• Cap on interest deductions from 2017
• Change to use of losses from 2017
• Carried interest rules changing again
• Other anti-avoidance to watch out for
24
Changes and trends
The march against tax avoidance
New investment
opportunities / targets
BREXIT Regulation
Eversheds LLP | 23/03/2016 | CREATE Workshop #1
CREATE #1: Real Estate Holding Structures
13
25
Questions
Eversheds LLP | 23/03/2016 | CREATE Workshop #1
26
eversheds.com©2016 Eversheds LLPEversheds LLP is a limited liability partnership
Eversheds LLP | 23/03/2016 | CREATE Workshop #1