UK RESIDENTIAL PROPERTY FOR NON-UK DOMICILES: solutions for personal use, investment and development

It was common practice, until recently, for non-UK domiciled individuals – whether UK resident or non-resident – to acquire UK residential property through foreign companies, even where the property was for personal occupation rather than investment or trading purposes. Offshore structures provided confidentiality and shelter from UK inheritance tax (IHT), while stamp duty land tax (SDLT) did not apply to the sale of shares in a company.

After the global financial crisis, however, the UK government sought to increase the tax take from UK property held through structures by introducing a raft of anti-avoidance measures aimed at UK real property that was held indirectly.

A package of measures targeting UK residential property owned or acquired by non-natural persons (NNPs) – whether UK resident or not – was introduced in 2012 and 2013. These included:

  • Higher rate (15%) of SDLT for residential property, effective from 21 March 2012;
  • Annual Tax on Enveloped Dwellings (ATED) on high-value UK residential property owned on, or acquired after, 1 April 2013
  • A capital gains tax (CGT) charge (28%) on ATED-related gains on disposal, effective from 6 April 2013.

Initially the SDLT and ATED charges affected only high-value (over £2 million) UK residential property owned or acquired by NNPs; however the thresholds were subsequently lowered to capture property valued over £500,000.

Having targeted companies, the government then turned its attention to all types of non-UK resident purchaser. Further measures were then introduced affecting all owners – companies, trusts, partnerships and individuals.

  • A non-resident CGT (28%) regime was applied to gains arising on the sale of UK residential property by non-UK residents, including non-UK resident trusts, from 6 April 2015
  • An additional 3% SDLT surcharge was applied to purchases of UK residential property if the acquirer already owns another residential property.

In addition, the government announced that from 6 April 2017 all UK residential property held directly or indirectly will be brought within the charge to IHT. This applies to all UK residential properties, regardless of whether they are let commercially. The scope of the rules is very wide and also catches any loan that is used to acquire, maintain or enhance UK residential property, or any collateral or guarantee provided in respect of such loans.

From April 2016, all UK entities were required to keep a register of people who have significant control (PSC) over the entity and, from June 2016, such information started to become publicly available at a central PSC register held at Companies House.

In May 2016, then Prime Minister David Cameron, confirmed that “all foreign companies which own properties in the UK will have to register publicly who really owns them, who really controls them—and no foreign company will be able to buy UK property or bid for central government contracts without joining this register.”

The Finance Act 2016 also introduced new rules to tax profits from trading in and developing UK land for disposals of property on and after 5 July 2016. The aim was to ensure that overseas property developers and investors pay income tax or corporation tax on the profits realised from the development of or trading in UK land in the same way as UK-based property developers and traders.

These rules tax a company’s trading profits derived from property in the UK, regardless of where the company is resident and whether or not it has a UK permanent establishment. The income tax rules operate in largely the same way. A disposal by a person of any property – company shares or an interest in a partnership – which derives at least 50% of its value from UK property may also be caught by the new rules.

This barrage of anti-avoidance rules has severely limited tax planning options for non-UK domiciled individuals, whether UK resident or non-resident, in respect of UK residential property. Commercial property has been largely unaffected by the new measures. If the property is part residential and part commercial a reasonable apportionment is required; only the residential part will be subject to the new measures. However, a Consultation was published at the end of 2017, the purpose of which is to ensure that non-resident persons that own commercial property in the UK will be taxed on gains made on or after 6 April 2019. Draft legislation will be published as the Consultation progresses.

However, it is still possible to use structures in appropriate cases to mitigate UK tax. Sovereign UK can advise on a number of fully compliant solutions to minimise UK tax exposure for non-UK domiciles holding or acquiring UK property, whether it is for personal use, investment or development purposes. These involve the use of trusts, UK and foreign companies, and qualifying non-UK Pension Schemes (QNUPS). For more information, contact Sovereign UK at your earliest convenience.

To download further detailed information please click here for:

UK Residential Property – Personal Use

UK Residential Property – Development

UK Residential Property – Investment

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