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Tax is always a key issue of course, and we have to look at this model in the context of a rational and holistic approach to taxation and pensions policy.

Isn't that another way of saying that this will work just fine as long as the current taxation system is redesigned around it?

I cannot imagine that the Revenue is going to lie down and accept an index-linked rental income as equity without a fight.

If normal taxation on investment rules apply, that would make the investment required to live rent free in a £100,000 apartment (for a 20% taxpayer) £125,000.  And, for a 40% taxpayer, £166,667.  Assuming zero management charges.

I wish you luck, but I hope you have some very good tax lawyers, and sufficient case law to obtain an insurance-backed indemnity for your occupier-investors.

by Sassafras on Thu Apr 10th, 2008 at 06:02:00 PM EST
[ Parent ]
Hmmm...I think there is some confusion here.

As I see it, the situation is precisely the same as applies with an offset mortgage. As far as I know, if an individual pays off part of his mortgage loan temporarily with "savings" which he may then draw down upon, he does not get taxed on an imputed amount of loan interest he is thereby not paying.

The same applies here. The Occupier may acquire "Equity Shares" (ie proportional shares in the land/property rental values) at a market price by paying more "Capital Rental" than is due.

He does this through membership of a "Land Partnership" property pool which is essentially a Cooperative of Property Occupiers in partnership with a Cooperative of Property Investors where the freeholds are all held by a "Custodian".

These "Equity Shares" confer no taxable income, as far as I can see, but do reduce the Capital Rental due.

The partnership framework essentially allows a new form of hybrid tenure of indefinite duration or "evergreen" lease.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Thu Apr 10th, 2008 at 07:05:24 PM EST
[ Parent ]
It's not quite as simple as that, though, is it?  Because you'll be asking the Revenue to accept that the same unit can be the equivalent of a a guaranteed income share in the hands of one taxpayer, but ceases to be taxable when that same unit is transferred to another.  But the proof of the pudding is: have you got Revenue approval for the scheme?

The other thing that occurs is: what would happen regarding the principal private residence tax exemption if home "ownership" is through shares in a cooperative?

Assume I bought my occupier-investor units for £100,000 ten years ago.  They're now worth £200,000, and I want to sell.  Would it be tax free, as it would be if I'd bought my home outright?

by Sassafras on Fri Apr 11th, 2008 at 04:23:11 PM EST
[ Parent ]
Sassafras:
Because you'll be asking the Revenue to accept that the same unit can be the equivalent of a a guaranteed income share in the hands of one taxpayer, but ceases to be taxable when that same unit is transferred to another.

I don't think so. The "interior" of an LLP structured as a framework in this way is a very interesting zone, because what we are seeing is essentially transfers between partners.

This is not a million miles away from the sort of internal transfers that go on within a multinational but not with the same end in view of tax avoidance.

It is the "Occupier" members who are the origin of any income of any other pure "Investor" members. The income of one member of the partnership is essentially coming from another member's use of the capital within the partnership.

The income received by non-Occupier members is to all intents and purposes similar to interest from deposits with building societies.

The difference is that this income is not in fact "guaranteed": if there is no Occupier, there is no income, which is an "Equity" risk.

I don't see how the Revenue could say that an Occupier is in receipt of any income for as long he is in Occupation and his Equity in the Pool does not exceed 100% of his rental obligation. ie for as long as he is making net payments to Investors.

The taxman gets his hands on the income non-Occupier investor members receive for the use of their capital.

As he should.

Proof of the pudding is in the eating of course, as you say, and we wouldn't dream of going "public" with such schemes until we have talked it through officially with the Revenue. This is very much a process under development and any input from experts like yourself is extremely valuable.

Sassafras:

Assume I bought my occupier-investor units for £100,000 ten years ago.  They're now worth £200,000, and I want to sell.  Would it be tax free, as it would be if I'd bought my home outright?

As things stand probably not, because it's not "your" residence although you do have the exclusive and indefinite right of occupation for as long as you pay the Capital Rental.  But it wouldn't be too difficult to "bed and breakfast" each year, I guess, if that were advantageous.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Apr 11th, 2008 at 06:29:26 PM EST
[ Parent ]

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