From a UK tax perspective, investing in UK real estate through offshore structures is only a realistic option for individuals who are domiciled outside the UK as a matter of general law, although non-UK residents who continue to be domiciled in the UK can achieve more limited tax benefits.
- What type of property is to be acquired – commercial or residential?
- How valuable is the property?
- Will the property be leased to a third party?
- Will the acquisition be funded by debt?
- What is your attitude to exposure to UK taxes?
We implement a variety of property solutions designed to meet the individual objectives and requirements of our clients and provide a range of support services to ensure that their structures are effective and run efficiently.
- Implementation of tailored property solutions
- Acquisition of property and land
- Cost effective administration of property and land
- Commercial property and VAT Registration
- Foreign Investment into UK property
- Taxation Services
- Bookkeeping and accounting
Property and Tax
Income Tax on Rental Streams
Net rental income from a property is within the charge to UK income tax. In a typical holding structure, the property holding company will acquire the property with debt provided by a third party lender or a related entity. Interest charged on the debt is tax deductible, although if the debt arrangement is not commercial in nature (for example if it is provided by a related entity), there may be a restriction on the tax deduction for the interest.
Stamp Duty Land Tax (‘SDLT’)
On the disposal of a property, the purchaser would be required to account for SDLT. This can be avoided if it is agreed that the shares in the property holding company, rather than the property, are sold; this could be attractive to a buyer who is also a foreign investor.
Value Added Tax (‘VAT’)
VAT must be considered on commercial property and the issues can often be complex. The Isle of Man, which is effectively part of the UK for VAT purposes, is an ideal location for housing an offshore property holding structure and registering for VAT purposes, as compared to other offshore finance centres.
Capital Gains Tax (‘CGT’)
With effect from April 2015, all UK residential property owned by non-UK residents will be subject to CGT. However, no double charge to CGT will apply if the property is within the ATED regime (see below).
Annual Tax on Enveloped Dwellings (ATED)
Care needs to be taken when structuring UK residential property acquisitions through companies and similar entities. A new regime introduced in 2013 (the Annual Tax on Enveloped Dwellings or ATED), which was extended in April 2015 and will be further extended in April 2016, includes a raft of measures designed to counter the use of property holding entities where certain criteria are not fulfilled. These comprise an annual charge, a new CGT charge and a punitive rate of SDLT on the acquisition of residential property by ‘non-natural persons’, which includes companies.
Investment properties leased to third parties at a market value rent are outside the ATED and other potential UK tax charges. Income tax liabilities on the rental income can be mitigated with careful structuring.
Holding Structures for UK Commercial Property
With proper advice and structuring, UK tax exposures can be mitigated by foreign nationals investing in UK commercial property.
The Isle of Man is the perfect jurisdiction for the establishment and operation of property holding structures; offering efficient and cost-effective arrangements for all types of property acquisition through various vehicle types, ranging from private wealth structures to collective investment schemes.