Over the past decade, various reports have highlighted the migration trends of wealthy Indians. This pre-existing trend has only accelerated due to the pandemic, with the UK becoming a summer home for well-heeled Indians.
Due to the globalisation of Indian families, there is also a growing need to acquire immovable property abroad, with the UK being a preferred destination for the high net-worth and ultra-high-net-worth families.
There are certain Indian legal and regulatory considerations that should be borne in mind for Indian families or individuals seeking to acquire real estate in the UK.
Exchange control and remittance rules
From an exchange control perspective, Indian residents are permitted to remit funds under the liberalised remittance scheme (LRS) to acquire immovable property abroad. Funds which are accumulated outside India through remittances under the LRS regime can also be utilised. The LRS permits the remittance abroad of up to USD 250,000 per financial year per person. In addition, Indian resident individuals are also permitted to acquire real estate abroad along with their non-resident relatives, who may fund the acquisition through the funds held in their NRO accounts or through their offshore funds.
It is important to note that if more than one resident member is contributing to the acquisition, all such members must be named as title holders of the property. Therefore, if the intention is to hold the property in the name of one or more specific individuals, funding needs to be organised accordingly. Further, it is important to bear in mind that an Indian resident cannot take any borrowing from outside India to purchase the property.
Structuring considerations
From a structuring perspective, it is key that the Indian family members or individuals also seek advice from a UK counsel prior to the acquisition of the real estate to ensure there are no adverse UK legal or tax implications. From a holding structure perspective, there are various options available. One might consider acquiring the property in their personal name or through a UK company, offshore company, UK trust or offshore trust.
If the asset is held in the personal name of the acquirer, there is no protection accorded from creditor claims, matrimonial claims, or from a UK inheritance tax perspective. Hence, a careful analysis of the pros and cons of each of the structures should be undertaken prior to making the final decision.
Inheritance Tax and Asset Protection
Based on experience, it is understood that UK inheritance tax applies to UK real estate assets, regardless of the residency or citizenship of the acquirer, subject to certain exemptions. An offshore discretionary trust structure would help overcome this issue. However, there are other issues to be considered for trust structures. If the trust assets are attributable to a particular beneficiary, the asset protection available under an offshore trust structure is lost.
Considerations for holding companies
In addition to the above, UK real estate is at times held through a company, and it is important to note that there is a corporation tax leviable on income earned by such a company. There is also an annual tax on enveloped dwellings which is leviable based on the value of the asset.
An offshore trust structure addresses most of these tax concerns. There is no corporation tax, annual tax on enveloped dwellings or dividend distribution tax levied on offshore trust structures. Instead, there is a tax levied on every 10th anniversary of the trust. If trust assets are distributed to beneficiaries prior to the completion of the 10-year anniversary, the said tax would also be levied in such cases.
Therefore, careful planning and structuring is needed for the key objectives to be addressed. There is no one size which fits all, and hence it is important to tread with caution, as unwinding an implemented structure would be fraught with expenses and tax consequences.
