Tax Benefits of Buying UK Properties Through an Offshore Structure

There are many advantages to creating an offshore structure and protecting your property in it. Tax advantages are only one of these - let's look at this in a little bit more detail:

In offshore jurisdictions like Guernsey and Jersey, no tax is payable on any income generated outside Guernsey and Jersey. There are no capital gains tax, no inheritance taxes and no exchange control regulations which allows for free and easy transfers of funds.

Both islands are widely recognised as two of the worlds premier international finance centres. The islands offer a first class infrastructure, stable economy, a transparent, comprehensive, sophisticated, modern and pragmatic law system, and easy access to courts, efficient company registries with cutting edge technology and established relationships with the United Kingdom which goes back a number of years. English is the main language.

Using property as an example let me illustrate an simple but dramatic advantage of buying property in an offshore company:

In the UK, stamp duty land tax ("SDLT") is payable on contracts for sale and purchase of UK property. The SDLT is payable by the purchaser. Just to highlight one of the most obvious and simplistic taxes payable.

When a UK property is purchased and transferred to an offshore company, the UK stamp duty land tax SDLT is payable by the offshore company as purchaser on the transaction. BUT when the shares of the offshore company, which owns the property, is eventually sold on, then SDLT is NOT payable in the UK by the new purchaser as there is no physical transfer of the property but only the transfer of the shares to the new purchaser. The shareholders of offshore company will also not pay capital gains tax on the sale price of the shares as no capital gains tax is payable in the Channel Islands.

The benefit that derives from the saving of SDLT for the purchaser is that it allows the seller to negotiate a better sale price for the sale of the shares of the offshore company.

Many UK properties are owned by international and listed companies, investment firms and funds through an offshore structure.

Typical offshore structures take the form of a trust with a Guernsey or a Jersey company. The Guernsey or Jersey company can conduct business anywhere in the world and this would have tax benefits and provide protection of investments and assets.

The costs for setting up a trust and a company structure in the Channel Islands starts from as little as £1,500 and could SAVE you more than that merely on the SDLT!

All regulatory requirements are met by the "offshore management team"which gives you PIECE OF MIND that all is in order with the structure's affairs. The annual management fees for each of a trust and a company ranges between £1,500 and £10,000. But make sure you deal with a reputable management firm that will deliver excellent service AND value for your money! Also check on HIDDEN COSTS by asking the management firm directly!

Management fees of the offshore company include the provision of company directors, the company secretary, the company treasurer, safe custody and the preparation of the accounts. Fees are charged in addition for time spent necessarily on the trust or company. The additional charges for time spent would depend on the nature of the structure, the activities of the structure and what needs done in addition to the scope of the work included under the annual management fees. Some structures only hold assets and wouldn't involve extra work so there could be no or minimal charges for additional time spent.

Many well known, recognised and reputable international companies are incorporated in the Channel Islands or have a Channel Islands element or presence. A number of companies listed on the London Stock Exchange, the Alternative Investment Market or other Recognised Stock Exchanges over the world have their incorporation in either Guernsey or Jersey.

Everyone's needs and tax consequences are different and should always take professional advice. The information in this article is for information purposes only and specialist advice should be taken on each and every transaction.

Tax Benefits of Buying Investment Properties

Property investing has proved itself is a wealth creation vehicle for many generations now. Many families have built their wealth on property acquisitions over a long period of time which now places them in an enviable financial position.

As it becomes clear that current superannuation plans may leave many retirees in a less than comfortable position, the property market provides an alluring alternative. But it is not just a simple matter of buying a property and rubbing your hands with glee at the inevitable positive returns. Careful professional advice is required and tailoring an investment strategy to suit your individual circumstances is vital.

Many first-time investors make glib references to the tax advantages that attached to property investment but a few simple points still need to be clarified. In this article will examine the important taxation considerations of property investment including negative gearing, depreciation, capital gains tax, and how tax benefits can make your investment pay.

* Negative gearing. This term simply describes the fact that you are borrowing money to make an investment. When the costs of the investment are higher than the return you achieve, you are said to be negatively geared. For example when an investment property has an annual net rental return which is less than the interest charged on the investment loan, the property is said to be negatively geared. This loss of income from the property is eventually made up over time as the property value increases. In the meantime however a high income earner can benefit from this as the losses can be offset against their taxable income. Although you should never specifically aim for a negative gearing position, you can take advantage of it if it suits your personal circumstances, and if the properties capital growth potential is going to be positive and greater than the cost of funds, otherwise it is a futile endeavour.

* Depreciation. One of the tax advantages in owning an investment property is that you can claim for depreciation of certain items and reduce your taxable income in the process. Things like refrigerators, furniture and cooktops can be written off over the effect of life of the asset. Naturally, you need specialist advice here and an accountant is the obvious choice. The Australian taxation office determines the schedules and allowances but you still need the services of an accountant and a quantity surveyor to make sure you get the greatest depreciation deduction. New properties have greater depreciation. You can claim two components, the building as well as the fixtures & fittings.

* Capital gains tax. This is charged on the capital gains that your investment property enjoys over the period you own it only if you sell it You become liable to pay the capital gains tax where your gains exceed your capital losses in any income year. This is where specialist advice really comes into its own as you can take advantage of capital losses if you sell the property at the right time. This is a very complex area that your specialist property adviser or accountant can assist you with. Otherwise if you are building wealth, you can get your property revalued and lend against its increased value to purchase another property without triggering capital gains tax.

* Making your investment payoff. After you have owned an investment property for a number of years, you are likely to enjoy substantial capital gains. Additionally, your rental income over the same time can greatly assist loan repayments to a point where it there is very little effect on your cash flow, or to the point of being positively geared. Reviewing your position at that time, you may be ready to add another property to your portfolio.

Take advantage of these tips and plan your property investment strategy only after consultation with experts.

The Tax Benefits of Buying a Home

There are many tax benefits to buying a home. They are definitely worth keeping in mind if you are a renter considering buying a home for the first time. Such benefits include mortgage interest deductions, property tax deductions, a capital gains tax exclusion, and preferential tax treatment.

In short, tax laws in the United States favor home owners. For instance, if your mortgage balance is smaller than the value of your home, you can fully deduct the mortgage interest applying to your home loan on your tax return. When you make a mortgage payment, interest is often the biggest component. For example, if your monthly payment is $1,200 then you might find that $1,162 is going toward interest while only the remainder of the monthly payment is touching the principal balance. It follows that being able to tax-deduct twelve months of interest is a huge benefit!

As a first time home owner you can also benefit from property tax deductions. Property taxes on your first home are fully deductible for income tax purposes. Also, property tax increases are limited to the lesser of the inflation rate or 2 percent per annum after assessing the value of the home when it's sold.

Home owners can also benefit from a capital gain exclusion. If you have lived in your home for at least two of the past five years then you may exclude profit of up to $500,000 (for couples) or $250,000 (for individuals) from capital gains tax. This exclusion can be used on your taxes every other year or every 24 months. This means you could foreseeable sell your home every two years and make a profit, tax free.

Home owners also receive other kinds of preferential tax treatment when they own a home. Even if you sell your home and receive more profit than the allowable exclusion for capital gains tax purposes, such profit will be considered a capital asset (providing you have been in possession of your home for more than one year). Capital assets receive preferential treatment by the IRS for tax purposes.

In addition to the many tax benefits of home ownership you will build equity when you own a home. The more payments you make, and the more you reduce the outstanding balance of your mortgage, the more equity you will build. Your credit score will also improve due to making monthly payments on time.

So... if you are a renter thinking about buying a home, definitely take the various tax benefits into account, as well as the general benefits of home ownership!

Tax Benefits of Forex Trading

Forex trading allows you to have the best of both worlds. When stock prices go up, you can benefit from Forex trading. When stock prices go down, you can profit from Forex trading.

Inflation goes up, you can profit from Forex trading. Inflation goes down, you can profit from Forex trading. Similarly, interest rates can go up or down, you will profit from Forex trading.

You have to pay a capital gains tax for any investment in financial markets. Capital gains will be considered short term if it is less than one year. Short term gains are taxed at your current tax rate.

And if you hold the security for more than one year before you take profit, you will have to pay long term capital gains tax. Long term capital gains are taxed at a rate of 15% only.

But if you invest in Forex markets, 60% of your profits will be taxed as long term gains and only 40% will be taxed as short term capital gains whether you hold a currency for one minute, one hour, and one month or more.

Lets take an example. Suppose you invest $10,000 in stocks and $10,000 in Forex. Your tax bracket is 33%. Suppose you made a profit of $10,000 in both stocks and Forex each in six months.

Since your stock investment was less than one year, your profit will be treated as a short term gain. That means you will have to pay your current tax rate of 33% which will be (10,000)(0.33)=$3,300 and your profit after taxes will be only $10,000-$3,300= $6,700.

It doesn't matter whether you took profit in six months or one year in Forex, 60% of your profit will be treated as long term capital gains and 40% will be treated as short term gains. It means 60% of $10,000 will be taxed as long term capital gains at only 15% which is (0.6)(10,000)(0.15)=$900.

40% of your profits in Forex will be taxed as short term capital gains at your current tax rate of 33% which calculates as (0.4)(10,000)(0.33)= $1,320.

So the total tax that you pay on your Forex investment will be ($900) + ($1,320) =$2,220. But your tax on stock investment was $3,300 which is $1100 more than the tax on the same capital gain on your Forex investment.

Tax savings on Forex investment like that can add up fast. Profits can accumulate quickly by investing in the Forex market within your IRA or other tax-deferred retirement account.

Commodity Investing and Tax Benefits

With tax season just passed, you may still be hurting from the results. If you requested an extension and haven't filed yet, this topic might be very helpful to you. Aside from the profit potential that you can realize from trading commodities, there are handsome tax benefits as well. The current tax laws separate investment gains and losses into two expansive groups: short-term capital gains and long-term capital gains. This feature is nice because when you are commodity investing, you are allowed to split your profits between the two categories.

To understand the tax benefits of commodity trading, there are a couple of things to learn. Grab the statements from your commodity account and a calculator, and start a spreadsheet; this is quick and fairly easy to grasp. Here are the things you need to do:

1. Understand what short-term capital gains are. Profits from any commodity trade that is held for less than one year are considered short-term capital gains. Short-term capital gains are taxed at the investor's normal tax rate; if you are in the 25% bracket, your short-term gains will be taxed at 25%.

2. Understand what long-term capital gains are. Commodity trades that are held for more than one calendar year are long-term capital gains. Long-term capital gains are taxed at a flat rate of 15% unless you are in the ten percent or fifteen percent brackets and then long-term capital gains are taxed at 5%. For those people who are holding long-term futures contracts, this is obviously a very attractive situation.

3. Add up your profits and losses. This is where you can use your calculator (or your computer if you have some spreadsheet skills). For each transaction you made while commodities trading, enter the amount of profit you made as a positive number and the amount of loss you had as a negative number. For example, imagine that you made three commodity trades; you earned $500 on the first, lost $300 on the second and made $1,000 on the third. To calculate your profits, add the numbers together. $500 - $300 + $1,000 = $1,200; $1,200 would be your profit for the year.

4. Determine your long-term capital gains. For this calculation, take the total number and multiply it by sixty percent. For our example, $1,200 x 0.60 = $720; this is your long-term capital gains on your commodity investing. Now you need to multiply this number by the 15 percent tax rate; $720 x 0.15 = $108. This will be the long-term capital gains tax responsibility on your commodity long-term investing.

5. Determine your short-term capital gains. For this calculation, take the total number and multiply it by forty percent. For our example, $1,200 x 0.40 = $480; this is your short-term capital gains for your commodity investment strategies. Now you need to multiply this number by the 25 percent tax rate (For this example we'll assume this is your rate but we hope it is higher!); $480 x 0.25 = $120. This becomes your short-term capital gains tax responsibility on your commodity investments.

6. Add the two together. Once you add the short and long-term tax numbers together, you have calculated your tax liability for your commodity trading. $108 + $120 = $228.

7. Review your savings. In order to see your savings, multiply your total profit for the year by your tax rate and then subtract your actual tax responsibility from this number. (Remember that we assumed you were in the 25% bracket.) $1,200 x 0.25 = $300; this would have been your liability. $300 - $228 = $72. While on the surface this doesn't seem like a lot but it is actually a 24% reduction in your tax burden for the money you made! 24% can make anyone's investment philosophy look pretty smart!

Conclusion

Because of the method for computing capital gains, commodity investing can be very beneficial from a tax standpoint. Since futures contracts are taxed at a split rate, 60 percent of your earnings from commodity investments are taxed at the long-term capital gains rate and only 40 percent is taxed at the short-term capital gains rate. This is called the 60/40 tax treatment, and it will save you money in taxes. As always you should consult your tax advisor but you will likely be very pleased with your returns!