This article is the final part in a series entitled ‘Purchasing UK Property: A Tax Guide for UAE Residents and Non-Domiciled Individuals.
Click to read Part one and Part two.
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Located on the iconic Baker Street, the multi-storey Sherlock Mews offers apartment living that blends chic character, rich heritage and high-end elegance, much like its fictional detective namesake.
We previously highlighted Rashid, a GCC national who recently bought a villa in Spain and is now planning to buy a £3m house in London that will be a base for him and his family when they visit. Personal ownership, discussed earlier, aids him in navigating ownership and tax regulation changes. We now delve into corporate ownership to examine its short and long-term impacts.
Owning UK residential property through an offshore company no longer provides protection from IHT. Instead, the value of the shares attributable to the UK residential property is chargeable to UK inheritance tax.
Determining the attributable value can be complex in the case of a structure with multiple companies and layers, and where there are borrowings. In Rashid’s case, however, assuming the value of the property hasn’t increased, he has an IHT exposure of up to £1.07m (after allowing for an offset of his nil rate band of £325,000). In reality, the exposure will be slightly less as there is generally an element of discount when the property interest is held through a company.
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Principal Tower, in London’s buzzing Financial District
The purchase by an offshore company can be liable to a top rate of SDLT of 17%, unless an exemption applies. Exemptions include those for a qualifying rental business, and property developers. The 17% rate includes a 2% surcharge as the company is non-resident. If no exemption applies, the company will pay an SDLT of £510,000.
The offshore company will need to consider its ATED reporting obligations and file an ATED return or relief declaration within 90 days of purchase completion. Penalties for late filing, even if there is no tax due, can be severe. So, it is essential that Rashid takes professional advice.
If the property is used exclusively for renting to third parties, then Rashid can submit a relief form, in which case no ATED will be due. If he uses the property himself, though, or allows friends and family to stay there, then it is likely ATED will be payable for the whole year with no relief for periods of third party letting.
Based on the current rates, an ATED charge of £26,050 would apply if relief is not available.
Any rental income will be liable to UK corporation tax, which is currently 19% but rising to 25% from 1st April, 2023. Any gain on the sale of the property will also be liable to corporation tax.
If Rashid sells his shares in the BVI company at a time when at least 75% of the company’s value is derived from UK land, he will be required to file an NRCGT return and pay any tax due within 60 days of share disposal. These rules were introduced with effect from 6th April, 2019 and, by default, allow the shareholder to rebase the shares to their value on 5th April, 2019 when calculating the gain chargeable to NRCGT.
If the above isn’t enough to navigate, in March 2022 the UK government passed the Economic Crime Act. This requires the BVI company to register the identities of the beneficial owners. Its introduction has been brought forward in light of recent geopolitical events in Europe. Companies House has now launched the register and owners have until 31st January, 2023 to comply. Non-compliance can result in daily penalties of up to £2,500 or up to five years imprisonment. Additionally, reporting under MTD is due to be introduced for corporate landlords from April 2026 and for individual landlords from April 2024.
A Summary
It is difficult to generalise but if Rashid or his family are going to occupy the property themselves then it will probably make sense for them to own the property personally.
This advice extends to individuals who bought property many years ago through offshore companies when the rules were in stark contrast to what they are today. Now may be a good time to take stock and work out the cost of moving the property into the personal names of the shareholders.
A confluence of factors, including the soft British Pound, has boosted the potential of the UK property market for savvy international investors who can move quickly. The discerning investor would do well to consider professional advice with regards to recent regulation changes now so they can act quickly to secure fitting UK opportunities.
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Christie’s International Real Estate Dubai is an established player in the luxury real estate industry. Being the sole Middle Eastern affiliate of Christie’s International Real Estate, it is part of a worldwide network spanning 47 countries. This enables the company to conduct regional and global property transactions with a high level of expertise and discretion.
Headquartered in Dubai, Alderley Global (registered with the Institute of Chartered Accountants in England and Wales) primarily focuses on multi-jurisdictional tax advice and trustee services to address the common challenges faced by high and ultra-high net worth individuals and families across the globe.
Disclaimer: The content of this article is for guidance only. Professional advice should be obtained before acting on any information contained within this article. No responsibility can be accepted for loss occasioned to any person as a result of action taken or refrained from in consequence of these contents. Any reliance you place on such information is therefore strictly at your own risk.
