Offshore Companies Owning UK Residential Property Need To Take Urgent Action
Contributed by Sovereign Group
23 October, 2012

Contributed by Sovereign Group [SovereignGroup.com]
Earlier this year the UK Government announced far-reaching proposals to change the way that non UK companies which owned UK residential property would be taxed. Previously these companies, like non UK resident individuals, had not been liable to pay Capital Gains Tax (CGT). Under the new proposals this would change and those companies would now be subject to CGT, broadly calculated on the difference between the acquisition value and the disposal value.
There are many companies who acquired UK property many years ago so their base value for CGT purposes will be very low. On resale of the property those companies are going to face a very heavy tax bill.
Additionally, companies which own a property worth more than 2 million will now be subject to an annual tax which is being referred to as "Mansion Tax". The amount will vary according to value but will be a minimum of 15,000 and a maximum of 140,000.
These charges are going to greatly impact on the investment value of such properties. Both charges can be avoided by transferring the property from the company to individual owners but, particularly for older buyers or those in poor health, that will not be attractive as it will mean that the property is subject to UK Inheritance Tax (IHT) at 40% of the total value if anything happens to the owner. Obviously it won't concern the owner themselves as the charge will only be triggered when they are past caring but many will be concerned to try and preserve wealth for the benefit of their family and heirs. For that reason, individual ownership will only seem interesting if the ultimate owners are young and/or intending to sell the property sooner rather than later. Those owners are likely to be in the minority. Insurance is likely to be an alternative way of covering the IHT but is likely to be expensive especially for older owners.
HMRC did announce some exemptions from the new charges. More detail of those exemptions have now emerged so the planning opportunities have now become clearer.
The first exemption announced was that professional trustees holding residential property would not be subject to the new 15% rate of Stamp Duty Land Tax (SDLT) that was introduced in April this year. They will also be exempt from the Mansion Tax but there is no general exemption from the new CGT charge which previously did not apply to non UK residents. Exemption from CGT can be obtained if the trustees and a beneficiary occupying the property both claimed Principal Private Residency relief. This would normally apply where the property is occupied by any beneficiary or any number of different beneficiaries of the trust. CGT might also be avoided by "selling" the property by changing the beneficiaries of the trust or if the trustee was a private trust company by changing the ownership of the trustee or by both. In fact there appear to be so many potential ways to avoid CGT and so many difficulties in collection that the latest rumour is that HMRC may decide not to introduce this new extension. At this stage it would be unwise to assume that CGT will not apply.
Discretionary trusts are subject to a ten yearly charge which could be as much as 6% of the capital value of the property. This is an attempt by HMRC to claw back some of the 40% IHT which is lost if UK property is held within trust. The way the ten year anniversary charge is calculated is complicated so 6% is certainly the maximum but it will generally work out to be between 3% and 6% depending on value and other circumstances. Luckily this charge is only payable on the equity in the property. If loans are used to purchase the property, the tax is payable only on the difference between the capital value and the loan amounts. For this reason it seems as though a two trust structure may give the best of all worlds. One trust, set up by a non-UK domiciled person, can receive the capital amount needed to purchase the property. That amount is then loaned to another trust which actually buys the property. The loan amount is then deducted from the value of the property for the purposes of calculating the 10 year tax. The loan could be sufficiently large to reduce the tax to a nominal or zero amount.
The above does not work for those who are still domiciled in the UK because the transfer into trust would trigger the lifetime IHT charge of 20%. For UK domiciled persons it is better to use a Qualifying Non UK Registered Pension Scheme (QNUPS). A QNUPS is a pension trust that enjoys special UK IHT treatment. The pension trustees (typically corporate trustees) are exempt from the new 15% SDLT charge and from the Mansion Tax. A QNUPS is not subject to the ten year anniversary charge. The terms and conditions necessary for the trust to qualify as a QNUPS do mean that access to the capital is somewhat restricted. The property can be sold and the money can be re-invested in another property or anything else allowed for under the pension rules but the pension holder would only be able to take the money out of the QNUPS according to the rules of the scheme. Those rules normally allow the pensioner to take a lump sum out on retirement and then the rest in drawdown. That restriction may not suit everybody so the trust structure will be preferable for non doms.
Happily, a gift by a non UK company to either a trust or a QNUPS can be made free of SDLT as long as there is no mortgage in place on the property. If there is a mortgage then SDLT is payable on the mortgage amount so the transfer could prove expensive to do now but will result in large savings in the future.
Trusts owning residential property are subject to higher rates of tax on rental income. They pay up to 50%. To reduce the tax on income the income rights can be vested in an offshore company wholly owned by the trust when the property is acquired. The tax rate is then reduced to 20%.
Anybody who owns UK property worth 2 million or which may become worth 2 million in the future should take action now. There is a window of opportunity to rebase the capital cost as long as this is done before April next year.
Howard Bilton is a UK and Gibraltar barrister, Professor of Law at Thomas Jefferson School of Law, San Diego and Chairman of The Sovereign Group.
« Go Back to Articles
Articles Archive
- 2019
- February (2)
- January (5)
- » Observations of the AGM of Association of Cyprus International Investment Firms
- » Cyprus IBC Capital
- » Three Key Considerations in Establishing your Virtual Currency Investment Fund
- » Lebanon: A Case Study on Efficient Inbound Investment - Tax Structures for Cross-Border Acquisitions
- » Nine Reasons to Work With a Professional When Filing Your Taxes
- 2018
- December (13)
- » Seven ideas for a perfect gift that cost nothing
- » Financial Advisor Hiring 101: What to Ask When Hiring For Your Business
- » The most popular countries in Europe with low taxes
- » Tax amnesty program in Panama for 2018
- » A Tax Advisors Point Of View - Is Malta A Viable Brexit Solution?
- » New rules for property tax and tax homesteads
- » Gibraltar publishes rules implementing EU rules against Tax Avoidance Practices
- » Notaries in Estonia will be empowered to certify documents via video link
- » The Cyprus Tax System Explained in a Simple Way
- » The Power of Sailing BVI Yacht Registration
- » The Intra-Corporate Transfer Regulations
- » 'The UK can unilaterally decide to Remain in the EU' - Advocate General, Court of Justice of the European Union
- » The Accounting Conundrum Solved - Accounting in the UAE Made Simple
- November (9)
- » Rocking Gibraltar
- » Investors: Applying For A Cypriot Passport? Read Our Guide
- » The Draft Withdrawal Agreement and Protocol on Gibraltar
- » Your Essential Guide to Offshore Companies in Dubai
- » Three Best Offshore Asset Structures in Belize
- » What You Need To Know About Standard Banking And Electronic Wallets
- » The Key to a Successful and Family-Friendly Career
- » European Commission proposes new Anti-Money Laundering Directive: 6AMLD
- » Gibraltar Association for New Technologies GANT
- October (9)
- » Financial Substance in Andorra - Part 1 of 2 - How And Why Did It Come About?
- » Financial Substance in Andorra - Part 2 of 2 - How To Comply With Substance In Andorra
- » CySEC: An Overview of the Cyprus Securities and Exchange Commission
- » Non-Residential Tax Returns in the UK
- » Time Is Running Out For Expats Behind on Taxes
- » GDPR WARNING: Why Not Shredding Your Data Could Cost Your Company Millions
- » Trust and Corporate Services Provider (TCSP) Licensing in Hong Kong
- » Cyprus: The Blockchain-friendly Island
- » Securing Your Children's Future with a Cyprus International Trust
- September (18)
- » 10 Most Common Tax Return Mistakes To Avoid
- » Cryptocurrency and Taxes - What You Need to Know
- » Why Getting HK Tax Residency Certificate & How to Benefit?
- » Investment Funds in Cyprus - A Guide for Global Investors
- » Why Should I Care About The FTSE 100?
- » Asset Protection: Your Personal Insurance
- » Why Switzerland Is The Best Place To Establish A Business
- » New type of funds (Cyprus): The Registered AIF (RAIF)
- » Understanding New York Real Estate Taxes
- » What are Fixed Indexed Annuities?
- » Cyprus Citizenship by Investment
- » Forming and Operating a Fund in Cyprus: A Guide for Emerging Cyprus Fund Managers and Investors
- » Cryptocurrency - a wallet or exchange?
- » Start-Up Dilemma: Things to Consider When Looking for the Perfect Office Space for Your Business to Grow
- » Investing in Self-Storage Real Estate
- » Estonia: Register of Beneficiaries in Force
- » Secure Crypto Currency to Physical Gold OTC Exchanges
- » Wolters Kluwer Tax Expert To Speak At Tax Reform Conference
- August (18)
- » Euro Exim Bank's Involvement with Blockchain Technology
- » Traditional Bank A/C Alternatives to Run Business
- » Iceland - Under The Radar Program
- » Launching an ICO through Cyprus
- » Is Your Significant Controllers Register (SCR) Ready?
- » 3 Simple Techniques For Contractors
- » Did you know that a $10K investment can get you a tax-free company and residency in Dubai ?
- » How to Set Up a Crypto Exchange License in the EU: Estonia
- » A Holistic Approach To Regulating Cryptocurrencies And Virtual Financial Assets In Malta
- » Quick overview of Seychelles Legal System
- » Seychelles Updates
- » Notional Interest Deduction (NID) Rules
- » Deduction For Transportation Cost Of Employees Rules
- » VAT Grouping Regulations
- » Malta Ahead Of The Game
- » Seychelles Tax treaties
- » Quick overview of Seychelles business tax
- » Gibraltar Budget 2018
- July (2)
- June (4)
- May (3)
- April (10)
- » Just Announced: 100% Ownership for Dubai Entrepreneurs
- » Why Hong Kong is Your Essential Business Hub
- » Lasting Powers of Attorney in Gibraltar - the Act comes into force
- » The How and Why: Redomiciling your Business in Singapore
- » GDPR - Key Aspects of the General Data Protection Regulation
- » Trademarks: What is the opposition process?
- » GDPR: What Do You Need To Know
- » Financial Advising: Accounting's New Look
- » Why register a trust in Cyprus?
- » How double taxation treaties work
- March (4)
- February (4)
- January (6)
- » Pension for Life: An Achievable Dream
- » Partnerships in Canada: tax haven or undesirable misfortune?
- » Benefits of Setting Up a Shams Free Zone Company In the United Arab Emirates
- » UAE's most dynamic free zone jurisdiction
- » The Future of Global Taxation
- » Common Standard Of Automatic Exchange Of Information On Tax Matters
- December (13)
- 2017
- December (7)
- » Branch Registration in Poland - Establish branch in Poland
- » Cryptocurrencies and the mainstream - bridging the gap to mass market adoption
- » Gibraltar - DLT Guidance Notes Published
- » The High Net Worth Individual Scheme
- » Middle East Faces Significant Challenges To International Business, Survey Finds
- » What impact will Brexit have on Gibraltar Cross-Border Mergers?
- » Tax minimization methods across the world
- November (4)
- October (7)
- » What you "token" about?
- » Legal "non-disclosure" overseas retirement planning
- » Why is it that more businesses blame poor results on currency movements?
- » Bitcoin Tax Strategies & Corporate Structures: Why Governments Worldwide are Scared of Bitcoin's Incredible Potential
- » Build an Offshore company in Hong Kong
- » Film Production Scheme to be introduced in Cyprus
- » ICO - the new way of fund raising for entrepreneurs
- September (3)
- August (3)
- July (3)
- June (8)
- » Fear Fintech? Embrace Fintech
- » Publication of Guidance Notes related to Automatic Exchange of Financial Account Information by Cyprus Tax Department
- » Law Firms and Marketing Strategy
- » Why will accountants, financial advisers and registrars lose their jobs in coming years?
- » Register of Beneficiaries in Estonia
- » Bitcoin, ethereum, crypto currency and block chain - the next industrial revolution - the new gold - from barter to bitcoin
- » Why partnering with a currency broker is a win for you and your clients
- » BEPS - What is it? & What is the cost on Africa?
- May (6)
- » Caribbean Flourishing Due to Citizenship by Investment
- » The New Zealand "Foreign Trust" regime vs the USA "Foreign Trust" Regime
- » How does one legally avoid paying more than 5% in taxes? Move your business to Malta!
- » Guide to the benefits of owning company shares through a discretionary trust
- » Four jurisdictions to start a company in
- » Global Tax Trends And Impact On Offshore Jurisdictions
- April (3)
- March (4)
- February (18)
- » Exactly which US expats have to file an IRS tax return?
- » The best citizenship by investment programs for 2017
- » Don't make these tax mistakes when you retire
- » How to get a Second Passport and Second Citizenship
- » Still the easiest place in the world to open an offshore bank account
- » Get second residency and pay no tax in these 19 tax-free countries
- » The fastest countries in the world to become a citizen
- » Cyprus introduces rules to implement Country by Country reporting requirements
- » Revised criteria for granting the Cypriot citizenship by investment
- » Potential Non-Dom Solutions: QNUPS
- » Tax Calendar 2017
- » Cyprus Investment Immigration Programmes
- » Reforms to the Taxation of UK Non-Domiciles
- » Potential Non-Dom Solutions: Trusts
- » Restarting the Clock: Residency Solutions for Non-Doms
- » Tax payers given rights to claim deemed deductions on Article 33
- » Declaration of an individual as a non-dom
- » Cyprus Tax Facts 2017
- January (4)
- December (7)
- 2016
- December (5)
- November (4)
- October (2)
- September (2)
- August (5)
- July (5)
- June (8)
- » The Corporate Governance Review - Cyprus 2016
- » Double Tax Treaty between Cyprus and Latvia signed
- » How Canada Taxes Real Estate Gains Of Non-Residents
- » Cyprus - Seychelles collaboration through the double taxation treaty
- » Eight Myths Regarding Being Non-Resident For Canadian Tax Purposes
- » Tax Issues for Non-Resident Actors & Entertainers in Canada
- » The Tax-Efficient Way For Foreign Corporations To Acquire Canadian Corporations
- » Why do online entrepreneurs need to structure their companies carefully?
- May (2)
- March (3)
- February (1)
- January (2)
- 2015
- December (3)
- November (2)
- October (2)
- September (1)
- August (3)
- July (3)
- June (3)
- May (2)
- April (4)
- March (4)
- January (4)
- 2014
- December (2)
- November (6)
- » NEWSLETTER: THE NEW PENSION FLEXIBILITY FROM APRIL 2015: THE DETAIL EXPLAINED
- » NEWSLETTER: THE NEW PENSION DEATH TAXES FROM 6.4.15 EXPLAINED
- » NEWSLETTER: NEW CAPITAL ADEQUACY REQUIREMENTS FOR SIPP PROVIDERS AND UNREGULATED INVESTMENTS WITHIN SIPPS
- » QROPS BULLETIN - NOVEMBER 2014
- » Controlled Foreign Companies (CFC) legislation voted by the State Duma
- » Migrating the residence of the target company from Costa Rican jurisdiction raises tax consequences
- October (2)
- September (5)
- August (5)
- July (1)
- June (9)
- » Banking in a Tax Haven isn't what it used to be!
- » Italian Tax Cuts
- » Part-Time Self-Employed Tax Submission
- » Life in the Sun: The Ease of Benefitting from Tax Residence in Malta
- » Cyprus Corporate Governance 2014
- » NEWSLETTER: HMRC tightening up on SSASs, unregulated product providers targeting PSLS, recycling issues, and an international pension conference
- » The Liability of Shareholders for the Tax Debts of a Company
- » Relief from Transfer Pricing for Controlled Foreign Companies
- » DFM Platform SIPP
- May (4)
- » The Dispute Resolution Review [Cyprus], Sixth Edition, Editor Jonathan Cotton
- » QROPS BULLETIN - MAY 2014
- » Malta Individual Investor Program - Facilitating Citizenship Through Investment in the Republic of Malta
- » NEWSLETTER: SIPP opportunities, new investment challenges for IFAs and delays in SSAS registration
- April (3)
- March (6)
- » Thin Capitalization in India
- » NEWSLETTER: Budget 2014: Important changes to pensions
- » QROPS BULLETIN - MARCH 2014
- » NEWSLETTER: Reallocation of assets/Beware if setting up a new scheme to beat the end of the tax year/UK pensions for non-UK residents
- » INSIGHT SIPP
- » Important Things about Home Insurance it is Imperative You Know
- February (8)
- » Murdoch and News Corp Receive $882m Australian Tax Rebate
- » Tom Perkins Believes that Taxes will lead to 'Economic Extinction' of the 1%
- » Weariness of Refund Fraud Heightens as Tax Season Returns
- » QROPS BULLETIN - FEBRUARY 2014
- » NEWSLETTER: CHANGES COMING INTO FORCE ON 6TH APRIL 2014
- » International Civil Fraud - Cyprus
- » New Online Pension Products And Services For Advisers
- » DFM Platform SIPP
- January (3)
- 2013
- December (1)
- November (6)
- October (6)
- » Seminar Invitation: QROPS/QNUPS/IHT Implications/New Platform/Fund Management and Online SIPP
- » Cyprus: Does the Boomerang Really Come Back Sometimes?
- » QROPS BULLETIN: OCTOBER 2013
- » The Importance of Planning
- » Why Malta?
- » NEWSLETTER: Protection update and more reasons why everyone needs to save more
- September (1)
- August (4)
- July (7)
- June (6)
- » Incentives for Third Country Nationals to Invest in Cyprus - Significant Improvements
- » QROPS BULLETIN: JUNE 2013
- » Introducing the ACORN LITE SIPP for Regulated Investments & Bank Accounts
- » Inheritance Tax U-Turn: Expats Must Plan Ahead
- » Landmark Supreme Court Judgment on the Rights of Depositors
- » Newsletter - June 2013
- May (7)
- April (3)
- March (7)
- » Return to 120% of GAD and ensuring SSASs are properly run
- » QROPS for Financial Advisers QROPS Choice
- » Forming a company in Monaco
- » Increase in Minimum Annual Tax Burden in Luxembourg and Restructuring Solution
- » Announcing the Launch of an Isle of Man QNUPS
- » Monaco Residency - easy process?
- » Why consider Monaco?
- February (11)
- » UK Publishes Draft Legislation on Offshore Companies Which Own UK Property
- » New 'Approved Manager' Regulations for Hedge Funds
- » Announcing the Launch of a Guernsey QNUPS
- » Changing Gears - Investment Funds in the British Virgin Islands are Moving from Strength to Strength
- » Asset Tracing Recovery Tools in the BVI
- » Depardieu, taxes and untrodden paths
- » Why you Should Choose the BVI for your Fund
- » Fast and Simple in BVI
- » Guide to Incorporating Companies in the BVI
- » QROPS: An Overview of Jurisdictional Differences
- » QNUPS: An Overview of Jurisdictional Differences
- January (7)
- » New Modifications to the Commercial Code
- » QROPS BULLETIN: JANUARY
- » Why isn't offshore dying?
- » Laws part of the Memorandum agreed for financial assistance to be provided by the Troika voted by Cyprus Parliament
- » The Autumn Statement 2012
- » Dubai - Property ownership through company structures
- » Money Laundering
- 2012
- December (2)
- November (7)
- » The Cyprus International Trusts
- » Increase in minimum annual tax burden in Luxembourg
- » Panama's Banking Center Reports Almost 12% Growth in Assets
- » Why do business in Bulgaria?
- » Setting up an LLC in Dubai
- » BVI Law Holds Even Keel Between Rights of Investors and Rights of Mutual Funds
- » A CHOICE OF NEW SIPPS
- October (8)
- » Offshore Companies Owning UK Residential Property Need To Take Urgent Action
- » QROPS BULLETIN OCTOBER
- » Announcing the Launch of the QROPS TRANSIT SIPP
- » Unisex GAD rates and a new service for defined benefit schemes
- » Will Cyprus collapse?
- » ARBITRATION AS EXPEDITED OPTION FOR CONFLICT RESOLUTION
- » Incentives for third country nationals to invest in Cyprus
- » Insight SIPP For Sophisticated Investors
- September (6)
- » Property in SIPP/SSAS and Death Benefit Trap
- » QROPS Bulletin September
- » Panama - Training, Tax Deductible
- » NEWSLETTER: SIPP cash rates, Unisex GAD rates, annuity rates worsen even more - and opportunities for IFAs!
- » SIPP / SSAS: COMMERCIAL PROPERTY MATTERS
- » SIPP / SSAS: COMMERCIAL PROPERTY MATTERS
- August (12)
- » QROPS BULLETIN
- » NEWSLETTER: Warnings for SSASs and those with Enhanced/Fixed Protection, property and illiquidity issues and the true costs of pensions
- » Form a Singapore Company
- » Offshore Companies Owning Uk Residential Property Need To Take Urgent Action
- » U.S. Law Jeopardizes the Panamanian Banking Secrecy
- » The Professional's Toolkit Shelf Companies
- » Weathering the storm
- » Funds article for New Europe
- » Bearer shares: are their days numbered?
- » QROPS BULLETIN August
- » Incorporation In Hong Kong
- » A gateway to the booming Asian market
- July (3)
- June (5)
- May (6)
- » Trusts & Foundations - The Best Tools for Giving...
- » NEWSLETTER: Pensions post 6.4.12 – the new Rules explained
- » Why you should consider Switzerland as part of your international tax planning arrangements?
- » A Different Style : VISTA Trusts 8 years later
- » Securities and investment business regulations in the British Virgin Islands
- » VAT Yacht Leasing Scheme
- March (4)
- February (1)
- January (7)
- » Cyprus Hydrocarbons Exploration and Exploitation: the Legal Framework and Licensing for hydrocarbon reserves in Cyprus' Exclusive Economic Zone
- » Cyprus Investment Firms
- » Outward Investment from Canada - The Offshore Perspective
- » Trade Marks in Cyprus: Registration, Protection and Infringement of Trade Marks and Community Trade Marks in Cyprus
- » The Document Keeping Requirement
- » The Professional's Toolkit - Shelf Companies
- » International Financial Centre Profile
- 2011
- December (3)
- October (5)
- September (2)
- August (5)
- July (6)
- June (2)
- May (6)
- » QROPS / QNUPS: Jurisdictional differences matter to Clients
- » Panama Pacifico: Gateway to the Americas
- » Income Tax Implications for Non-Residents Investing in Canadian Real Estate
- » QROPS Bulletin May 2011
- » QROPS Proposition: SIPP Specialists Hold a Unique Market Position
- » QROPS: Choice of Jurisdictions on Isle of Man
- April (3)
- March (4)
- January (3)
- 2010
- December (2)
- October (1)
- May (3)
- April (2)
- March (1)
- February (1)
- January (1)
- 2009
- October (1)
- September (1)
- August (2)
- April (1)
- January (1)
- 2008
- November (1)
- September (1)
- July (1)
- 2007
- 2006
- 2005
- September (1)
- June (1)
- 2004
- April (1)
- 2003
- 2002
- August (1)
- June (1)
- May (1)
- 2001
- June (1)
- May (1)
- March (1)
- 2000
- November (1)
- October (1)
Event Listings
Listings for the leading worldwide conferences and events in accounting, investment, banking and finance, transfer pricing, corporate taxation and more...See Event Listings »