Offshore Companies Owning UK Residential Property

Are There Tax Implications?

Holding UK property through offshore companies requires a keen understanding of current tax implications.

Whether you’re an investor, a business owner, or engaging in property trading, knowing how you could be liable for tax is crucial.

(Read Time: Approx. 4 minutes)

Topics Discussed:

• Understanding the tax treatment for non-UK resident companies owning UK property.

• Key tax considerations for offshore companies involved in property investment or trading.

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Understanding Non-UK Resident Companies’ Tax Treatments

Determining your offshore company’s tax residency is crucial.

Although incorporation usually dictates tax residency in that country, UK tax legislation and double tax treaties often consider the location of central management and control.

If these activities are in the UK, the company can be classified as a UK tax resident, irrespective of its place of incorporation.

This critical detail influences whether the company holds property as an investment or is engaged in property trading, impacting tax obligations and regulatory compliance.

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Registration Requirements for Overseas Entities

The process of registering an overseas entity holding UK property is a structured yet intricate journey, with the launch of the Register of Overseas Entities (ROE) on August 1st, 2022, setting some clear guidelines.

Here are the simplified steps for compliance:

1. Initial Assessment: Entities must first determine if they have an interest in UK property and understand the specific registration requirements and deadlines, varying across England, Scotland, and N. Ireland.
2. Identification Phase: The next critical step involves identifying registrable beneficial owners or those exerting significant influence or control, considering potential exemptions to avoid duplication in group structures.
3. Agent Appointment: A UK-regulated Agent is then appointed, who registers for online access to Companies House and obtains an assurance code for verification purposes.
4. Verification Process: The Agent undertakes the verification of supplied information, balancing the need for thorough checks with the less stringent requirements compared to AML processes.
5. Completing Online Registration: This pivotal step can be executed by either the Agent or the Entity itself, involving an online filing fee of £100 and subsequent verification confirmations, especially in cases where the Entity leads the registration process.
6. Confirmation from Companies House: Once the registration is reviewed and accepted, Companies House issues an Overseas Entity ID, vital for subsequent transactions.
7. Ongoing Compliance: Annually, the Entity must update its information with Companies House to maintain compliance.
8. Land Registry Registration: Utilising the Overseas Entity ID, any changes in UK land interest, such as purchases or lease variations, must be registered with the Land Registry.

For a more detailed look in to the registration process, see gov.uk’s full page, including the required OS IN01 form.

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Corporation Tax for Non-UK Resident Companies

For non-UK resident companies, understanding Corporation Tax obligations is crucial, particularly for those with Permanent Establishments in the UK.

These companies are mandated to register with Companies House and may fall under the purview of various Double Tax Treaties, which could classify a building as a permanent establishment.

Furthermore, any disposal of an interest in UK land or property necessitates registering online for Corporation Tax within three months of becoming chargeable.

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Property Income Tax Considerations

Since the 6th of April 2020, non-resident landlords have transitioned from Income Tax to Corporation Tax on their rental income.

This change came with transitional rules for carried forward losses and requirements for agents and tenants to withhold tax at the basic income tax rate under the Non-Resident Landlord scheme.

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Annual Tax on Enveloped Dwellings (ATED)

ATED becomes applicable when non-natural entities hold interests in UK residential property valued over £500,000.

The implications of ATED extend to scenarios where properties are let non-commercially or to connected parties, influencing the tax charge based on the property’s value.

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Capital Gains Tax (CGT)

For non-residents, the CGT landscape underwent significant changes from the 6th of April 2015 onwards under the Non-Resident’s CGT regime (NRCGT).

The regime broadened its scope in 2019 to encompass all UK property types and disposals of interests in property-rich entities.

Interestingly, rebasing to market value as of specific dates presents an opportunity for strategic tax planning.

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Inheritance Tax (IHT) Considerations

The IHT framework experienced notable revisions in April 2017, particularly affecting UK residential properties held in offshore structures.

For non-domiciled individuals, these changes are especially pertinent, bringing such properties within the IHT scope.

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Summary

The evolving tax rules for non-UK resident companies holding UK property is constantly changing, year-by-year.

From registration requirements to navigating various tax regimes, understanding these intricacies can significantly impact your tax liability and strategy.

For tailored advice and deeper insights into these matters, consulting with a tax expert, like our team at www.taxexpert.co.uk, is advisable.

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Contact us today at 01772 788200 to find out more about how we can help, or WhatsApp us out-of-hours at 07787 010190.

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Kind regards,

Ilyas Patel