Abacus were approached by a wealthy non UK resident who was seeking to acquire UK land with a view to obtaining a change in planning consent and also purchase a London property to modernise and then on sell both at a significant profit.

It was clear from the client’s intentions that the UK HMRC would treat the transactions as trading rather than investment and therefore a structured approach to securing a tax efficient result would be required.

We were able to suggest that by utilising the Isle of Man/United Kingdom Double Tax Treaty and acquiring the land and property via an Isle of Man company the “trading” profits could be treaty protected from a charge to UK tax.

An Isle of Man company was formed with the client (it could have been a company or trust representing the client) being the shareholder of the company and Abacus being directors of the company. This ensured that management and control was demonstrated as being carried out in the Isle of Man.

The company was of course subject to Isle of Man tax on its profits but from 6 April 2006 the Isle of Man introduced a 0% standard rate of tax for companies. This strategy allowed the company to trade in UK land and property (other than through a UK permanent establishment) and be treaty protected from a charge to UK tax. It did not suffer a charge to tax in the Isle of Man and the company was able to distribute its profits to the shareholder free of any Isle of Man withholding tax.

The diagram below outlines the structure.

Benefits of the structure

1. No UK Tax as treaty protected
2. Isle of Man tax charged at 0%
3. Tax free distribution of profits to shareholder