It has been commonplace for many years in Guernsey for properties, especially higher value properties, to be owned via a Guernsey registered company. There was a distinct advantage to this in that sales could be achieved via a share transfer rather than a physical conveyance of the property itself. This enabled purchasers to avoid paying the document duty on the sale of a property. The document duty is a significant cost especially on more expensive properties. It is charged on a progressive scale of 2.25% for properties valued up to £250,000, climbing to 5.5% of the total property value on properties over £2 Million. This loophole in the law was finally closed in 2017 and it is no longer possible to avoid the document duty by selling a property via a share transfer. As such there is now little need for the Company in which the property is owned where the property is lived in by the owners and there is no commercial element e.g. property rental.
The reasons to ‘de-envelope’ now are threefold:
1. Responsibility and administration of running a Limited Company.
A company requires maintenance in the form of annual validations, the production of annual financial statements and submission of a corporate tax return not to mention ensuring the corporate books and records are kept in good order and up to date at the Company’s registered office address. The administrative burden and responsibility is disproportionate where a company’s sole purpose is to own the property in which you reside in and there is no longer any clear benefits to this setup.
2. Cost of running a Limited Company
Another reason to move your house into your personal name(s) is so you don’t have to pay the Annual Validation fees every year (£250) to keep the company on the register of Companies. Late filings with the Guernsey Registry and the Guernsey Revenue Service, for late tax returns, will usually result in fines and penalties. You would be surprised by how many local people get caught out each year by forgetting to make the annual validation filing or filing a late tax return.
3. Reduction in probate fees
There is also another key benefit in de-enveloping your property which comes about on your death. Guernsey residents will usually have a will of realty (if he/she owns real estate in their own name) and a will of personalty which covers all other moveable assets that the person owns. Upon your death probate will need to be sought at the Ecclesiastical Court in Guernsey.
The Ecclesiastical Court charges its fees based on the value of the estate of personalty at the date of death. The value of the estate is always taken as the gross value (i.e. before deduction of debts and liabilities) of worldwide assets. Real estate situate in the Bailiwick of Guernsey is not included in the value of the estate.
Therefore if your property is held in your own name then there will be no probate fees to pay on the value. Whereas if your Guernsey property remains in a company, the shares of that company form part of your ‘personalty’ so is included in the probate fees calculated on your worldwide estate.
So, I want to de-envelope my property – what are my next steps?
You will need to formally convey your property from the company into your own name(s) which must be done by a Guernsey advocate. This is not particularly expensive and the benefits of doing so will usually outweigh the risks of not.
Once the property has been conveyed out of the company, provided there are no other assets or liabilities held within the company a simple strike off of the Company can be achieved within a few months. A voluntary strike off procedure exists in Guernsey company law to allow directors to properly dispose of Companies with no assets or liabilities that are no longer required. Provided the voluntary strike off has been submitted prior to the annual validation period then there is no annual validation fee to pay.
The annual validation period for companies has been moved this year (and for subsequent years) to 1st June to 31st July. Therefore there is still sufficient time to de-envelope before the annual validation period deadline thus saving this year‘s annual validation fee.
Ensure you get a Will of Realty in place to cover off this real estate asset which is now in your personal name. Alternatively get your existing Will of Realty reviewed and updated where necessary. A Guernsey advocate specialising in wills and estates will be able to assist with this.
Should you need any assistance with taking care of the administration of any Guernsey companies that you own please give us a call and we’ll be happy to assist and provide you with a no obligation quote.
