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Eversheds CREATE Workshop #1: Real estate holding structures
The document outlines a workshop focused on real estate holding structures, discussing various types of structures such as direct and indirect holdings, their commercial benefits, legal frameworks, and regulatory considerations. It also emphasizes the importance of factors influencing the choice of structure, such as liability, taxation, and operational flexibility. Additionally, the document touches on recent trends and changes in legislation impacting real estate investments, alongside a budget update.
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Eversheds CREATE Workshop #1: Real estate holding structures
- 1. 1 CREATE Workshop #1 RealEstate Holding Structures Eversheds Real Estate@EvershedsRE
- 2. 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
- 3. 3 Direct and indirectholding 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. 4 Acronyms! Do you knowyour ELPs from your LLPs? See handout. Eversheds LLP | 23/03/2016 | CREATE Workshop #1
- 5. 5 Let’s simplify this! Interestrestriction from 2017 Attack on tax avoidance The court of public opinion Increased Regulation 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. 6 Why do it? Limitedliability 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
- 7. 7 Factors that influencestructure PARTIES Holding structures ASSETS BUSINESS PLAN OPERATIONAL REGULATION RETURN SOUGHT EXIT Eversheds LLP | 23/03/2016 | CREATE Workshop #1
- 8. 8 Holding structures Typical indirectholding structures Eversheds LLP | 23/03/2016 | CREATE Workshop #1
- 9. 9 Investor Onshore company UK Company Bank Property Management Interest Fees Income Taxable Gains EquityLoans 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. 10 Investor Offshore company Offshore Company Bank Property Management Interest Fees Income Taxable Gains Equity Loans DividendsInterest 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
- 11. 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. 12 Parent company JPUT – incometransparent: 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 Investor Second unit-holder Property management Income UK Property Eversheds LLP | 23/03/2016 | CREATE Workshop #1 JPUT Income
- 13. 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 • SDLT on sale/changes in holdings/potentially on seeding • Need for a GP, cumbersome • Limited partners cannot participate in management • Liquidity • Deemed disposals on dilution 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. 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 limited partner (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 income according 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 unitholder level Rules depend on whether partners are subject to income tax or corporation tax Eversheds LLP | 23/03/2016 | CREATE Workshop #1
- 15. 15 Joint Ventures An introduction EvershedsLLP | 23/03/2016 | CREATE Workshop #1
- 16. 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
- 17. 17 17 Why nota 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 18 CIS • Commercialarrangement 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
- 19. 19 Putting it alltogether Mixed use site Eversheds LLP | 23/03/2016 | CREATE Workshop #1
- 20. 20 20 Putting itall together: mixed use site Eversheds LLP | 23/03/2016 | CREATE Workshop #1 Road Resi to hold Commercial hold Commercial Commercial Resi to hold
- 21. 21 Putting it alltogether: 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. 22 Changes and trends EvershedsLLP | 23/03/2016 | CREATE Workshop #1
- 23. 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. 24 Changes and trends Themarch against tax avoidance New investment opportunities / targets BREXIT Regulation Eversheds LLP | 23/03/2016 | CREATE Workshop #1
- 25. 25 Questions Eversheds LLP |23/03/2016 | CREATE Workshop #1
- 26. 26 eversheds.com ©2016 Eversheds LLP EvershedsLLP is a limited liability partnership Eversheds LLP | 23/03/2016 | CREATE Workshop #1 Eversheds Real Estate @EvershedsRE