Offshore Property Sales

You should think carefully about how you invest the proceeds of your property (er, company) sale. Think particularly carefully if you think you might invest some of the money in US shares (or other US-sited assets). The US government is bringing in a withholding tax for dividends/interest/proceeds arising out of investment in US companies that are remitted outside the US. It becomes effective from 1 January 2001, like the UK’s new law on tax evasion, and the rate on dividends and interest is 30 per cent. The rate on selling a US-sited asset is 31 per cent. And get this: with a sale, the rate is payable on the proceeds, not just on any profit.

“In terms of the size of the problem, this one gets my Elephant Rating,” says Jonathan Crowther, trust and company expert at Cater Allen Offshore in Jersey.

Offshore Property Sales - Investing

There is, happily, a solution, and it entails investing in the US through an offshore company. The withholding tax is designed to stop overseas-resident US citizens and taxpayers avoiding tax on their US-sited assets. Therefore, the trick is to prove that you’re not a US citizen. “If you have a company,” says Mr Crowther, “the withholding-tax rules state that the company is viewed as the beneficial owner of the asset.” Therefore, it escapes the withholding tax (assuming firstly that it isn’t a US-sited company, and secondly that it is sited in an ‘approved jurisdiction’; the main offshore centres are currently applying for approved-jurisdiction status).

Offshore Property Sales - US Citizen

The root of this problem is that brokerage firms are also potentially liable. The rules state, obviously enough, that collective investments must be approved to escape the tax, but also that any broker dealing in the US market must have ‘Qualifying Intermediary’ status. Check that your broker is set up with QI status before you, and/or your company, use it to buy. Or forget about that and take life more easily. What about investing in an OEIC? But that’s another story.