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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?
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
Tax on Rental Streams
Net rental income from a property remains within the charge to UK income tax up until 5 April 2020 after which it will be charged to UK corporation 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. The taxable rental profits are after interest charges and therefore the tax payable may be minimised (subject to certain restrictions).
Stamp Duty Land Tax (‘SDLT’)
On the disposal of a property, the purchaser would be required to account for SDLT. The rate of SDLT payable varies depending on whether the transactions relates to residential or commercial property. 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.
Properties in Scotland and Wales are subject to separate land transaction taxes.
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.
Annual Tax on Enveloped Dwellings (ATED)
Commercial properties are not within scope of ATED. Residential properties leased to unconnected third parties are outside the ATED tax charges.
Tax on disposal
From 6 April 2019, all disposals of UK land are subject to UK tax (whether the property is owned personally, by a company or a trust).
UK commercial property, if held via an offshore company, is not within scope of UK inheritance tax. From 6 April 2017 onwards, interests in UK residential property are, except in limited circumstances, within scope of inheritance tax.
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.