It is perfectly legal and relatively straight forward for you to transfer to, or purchase property with, an offshore company. This is a method that has been used for many years.
In order to prevent the Offshore Company being classified as a property trading company (and therefore being subject to tax on profit and capital gains in the UK), and retain its holding company status, the Company would hold a single property. This means if you have multiple properties, you can utilise multiple offshore companies.
This strategy is useful for both UK and non-UK residents purchasing property here in the UK.
There are 4 key reasons property investors choose to set up Offshore Companies to own UK Property:
1. To Avoid Capital Gains Tax (CGT)
Non-UK resident companies are exempt from CGT on the sale of investment property. This the case provided that the company is not seen to be managed or trading (hence 1 property per company) in the UK. It is also essential for individuals to consider relevant Controlled Foreign Company Tax legislation. This is a complex area, but you can read more about this here.
If a UK property is rented, then the profits of the rental income would be subject to UK taxation whether the owner of the property is UK tax resident or not. It may be possible to avoid this if the purchase was funded by a non-UK institution or investment provider, it would be wise to seek further advice on this point before seeking foreign investment.
CGT can also be avoided by the company selling the shares of the company owning the property rather than selling the property itself. The eventual sale of a UK property to a third party would still be subject to CGT if a gain has been made from the original purchase price and the sale price is more than £2m, regardless of the residential status of the Company or its beneficial owners.
2. To Minimise Stamp Duty
Purchasing shares of a company owning a property rather than purchasing the property itself also removes the liability for SDLT.
In the initial phase however, SDLT would still be payable by the purchasing company. The UK currently has a Stamp Duty Land Tax (SDLT) holiday in place for properties valued at under £500,000.00 this is available for homeowners and companies until March 2021. For properties valued at over £500,000 there is a sliding scale of discounted SDLT rates available for this period. It is likely that from April 2021 a 2% higher rate of SDLT will be levied for non UK residents, however it is important to note that the cumulative tax savings may still make this additional 2% SDLT
As with the Director and Shareholder details of UK Companies, property ownership details are publicly available from the HM Land Registry website. Land Registry Titles can be purchased online for £3 and includes the name, address and purchase price of the property. The benefit of using an Offshore Company is that the name and registered address of the company would be displayed. If someone wanted to find out who the Directors and Shareholders of the Company were, they would need to search the public register in the relevant jurisdiction. Many Offshore jurisdictions do not have public registers, however those that do, in most cases, allow Nominee Directors and Shareholders to be used thus making it impossible for the true company ownership to be identified.
4. To Avoid Inheritance Tax
In the UK inheritance Tax is 40% of the Estate. There is an allowance for the spouse of the departed however Inheritance tax still can be huge. Inheritance tax applies only to individuals. This means that if a Company owns property, it is outside the individual’s estate therefore the shares of the company can be transferred on the death of the beneficial owner (or even before if they choose) without liability for Inheritance Tax. This is also a much quicker and cheaper process than going through probate and the official records held by Land registry do not need to be updated because the property ownership has not changed. It is still owned by the company; it is simply a case that the shareholding or beneficial ownership of the company has changed.
If you want to know more about how using an Offshore Company can benefit you, get in touch with a member of our team today.