Offshore Companies Holding UK Property From 2013

UK domestic law cannot override double taxation agreements and certain jurisdictions may allow the disposal of shares without a charge to UK taxation.

However, anti-forestalling measures took effect from 22 November These counteract arrangements undertaken prior to April in order to circumvent the charge, in particular non-residents seeking protection under beneficial double tax treaties. Under the draft legislation, gains arising to individuals will be chargeable to capital gains tax and gains arising to companies will be chargeable to corporation tax. Disposals will need to be reported to HMRC within 30 days of completion with a payment on account of the tax also being due on that date in most cases.

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However, rental profits would be calculated using corporation tax principles rather than income tax principles. However, there may be cases where a larger shareholding has been fragmented to which this would be applicable. This will result in the distribution of such gains to shareholders by the REIT being treated as a property income dividend potentially subject to withholding tax rather than as a normal dividend. The position regarding a disposal of shares in a non-UK resident company within a REIT structure is likely to be complex.

In particular, gains on the disposal of interests in Jersey Property Unit Trusts held via a non-UK resident holding company within a REIT structure may become taxable as residual income.

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Introduction of UK tax on gains arising on residential properties held by non-residents where not widely held augmenting ATED gains rules introduced April Introduction of UK tax on gains arising on residential and non-residential property held by non-residents, unless held by a pension fund. Taxation of rental income from UK properties held in non-resident companies to be taxed under corporation tax rather than income tax rules. Non-UK resident investors — gains on direct property disposals Following consultation, draft legislation has now been published to implement an extension to the charge to tax on gains.

Non-UK resident investors — gains on indirect disposals of properties Disposals of UK investment properties often involve a sale of the company owning the property rather than a sale of the property itself.

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This will normally apply where both the following conditions are met: Interests held by related parties would be aggregated for this purpose and interests held in the previous two years would also be taken into account. No discount will be permitted in this calculation for outstanding liabilities such as debt secured on the property. Shares in such companies will be rebased to their market value in April Double taxation agreements UK domestic law cannot override double taxation agreements and certain jurisdictions may allow the disposal of shares without a charge to UK taxation.

Reporting of disposals Under the draft legislation, gains arising to individuals will be chargeable to capital gains tax and gains arising to companies will be chargeable to corporation tax. Again, this may be lower than the rates of tax that would be payable by a non-resident individual letting a property in their personal name.

There may be non-tax advantages to holding a property through a company, albeit the tax implications will usually be a major consideration.

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For example, holding genuine investment buy-to-let properties through a company whether UK or offshore can still be advantageous in some cases, particularly as it can provide a mechanism for passing some of the value down to the next generation whilst retaining control through the use of appropriate share structures.

If there will be adverse tax consequences if the property is left where it is, most clients will want to extract the property if possible. For non-UK resident individuals who already own UK residential properties through offshore companies, it is normally relatively easy to liquidate the structure and extract the property with minimal UK tax charges. There may be some CGT to pay by the company, either on the gain from April if the property has been within ATED throughout or on the gain from April if the property is a buy-to-let and therefore the general non-resident CGT charge applies.

Using an offshore company to buy and sell UK residential property

For UK resident individuals who already own UK residential properties through offshore companies, it is often much harder to extract the properties without significant adverse UK tax charges. If significant CGT is at stake, UK resident individuals may want to wait until there is greater clarity on any possible de-enveloping reliefs, albeit accepting there is no guarantee they will be beneficial and ATED will continue to accrue in the meantime.

This is yet another reason to start the review process now. So, rather than looking for more complex planning opportunities, if a property owned for personal use can be extracted with minimal tax consequences I would recommend doing so. Recommend that clients start the review process now. We may not have full details of all the changes yet, and many clients will want to wait and see whether there are any sensible de-enveloping reliefs before deciding how to proceed.

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