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International Aspects

High value property in prime parts of London has long been a desirable asset of the wealthy non UK domiciled individual, whether that person is resident in the UK or not.

Most individuals want to know from the outset how best they should own their UK property whether that is a residential property for their personal use or an investment property. The choice can be quite different depending on what the purpose of the property ownership is. There is more to think about today than ever before, but the key taxes of concern have remained the same, namely Inheritance Tax (IHT), Capital Gains Tax (CGT) and Stamp Duty Land Tax (SDLT).

Personal Residential Property

A residential property for personal use is usually now best owned in the owner’s personal name. Where clients are couples, joint ownership is recommended. The property is an asset of their UK estate and will be subject to UK IHT.  A capital gain on disposal of the property will be chargeable but can usually be relieved from tax if the property is the main residence due to Principal Private Residence Relief.

If the non domiciled client leaves the UK, retaining their property in the UK, then it is likely that when a disposal takes place they will not be resident in the UK. Historically, that was good news because the non resident generally did not pay CGT at all on disposal of their UK assets. However, from 6 April 2015, non residents will pay CGT on the gains from UK residential property but limited to the gain arising from that date only.

Investment property

It is possible to avoid both IHT and CGT with careful planning.


A non domiciled individual can own UK residential property through a non UK company. Provided they are not deemed domiciled, their shares in the non UK company are not within the scope of UK IHT as they are excluded property. If they become deemed domiciled, that will change, of course. In most cases, there should be time to get a trust in place to own the company before that time to keep the property out of IHT altogether.


The non domiciled client can own their residential UK property in a non UK company. They can later sell the company owning the property rather than the company sell the property. CGT is avoided on disposal of the company shares provided, if the shareholder is resident, they claim the remittance basis and the proceeds are retained outside the UK. This can be accomplished even if the company is owned by a trust.

Provided the property is let fully, if the company sells the property, the gain on disposal will arise on the company and CGT will be payable at the prevailing corporate rate of 20% with rebasing at 6 April 2015.


There is no avoiding payment of SDLT but the rate is levied at the normal rate applying to residential property and therefore no more expensive than personal ownership.

Given the above scope for tax efficiency for investment property structuring, it is no wonder that individuals have considered the same options for the residential home. Over the past few years, new legislation has made it more difficult to own the main home through a structure in a tax efficient way. A quick summary of the reasons why follow.

Annual Tax on Enveloped Dwellings (ATED)

The ATED came into effect from 1 April 2013 in relation to UK residential property which is owned by a Non Natural Person (NNP). A NNP includes a company, partnerships with company members and collective investment schemes.

A chargeable person owning let residential property on commercial terms is exempt from the charge. Property occupied by an individual and their family is caught if its value comes within the value thresholds. The value threshold currently starts at £1m and will be reducing to just £500,000 from April 2016. The ATED is an annual charge and is levied according to the value bands set as follows:

Taxable value of Property               Annual chargeable amount

£2m to £5m                                        £15,000

£5m to £10m                                     £35,000

£10m to £20m                                   £70,000

greater than £20m                            £140,000

Unless the property is going to be let out commercially, the ATED will represent a real annual cost.

ATED related capital gains

Disposals of UK residential property by a chargeable person give rise to an ATED related capital gain and this is taxed at the CGT rate of 28%. The ATED related gain is the gain arising from 5 April 2013 only but rising capital values since that time already mean significant gains have accrued in some cases.


There is a punitive SDLT rate of 15% for high value residential property being acquired by a NNP. Of course, this serves as a deterrent but despite the downsides, for some, the above taxes are a price worth paying for the IHT shelter that can be achieved as well as confidentiality of ownership.

Leaving the UK

Many non domiciled individuals will leave the UK at some stage and return to their country of domicile. They may retain some UK property. Disposal of a UK residential property when non UK resident will no longer be outside the scope of CGT in the UK. This aligns the UK position with that of many other countries.

Anyone who is already non UK resident and thinking of becoming UK resident may want to consider selling their UK property in advance to take advantage of the 5 April rebasing.

Whatever the case, advice should be sought before acquiring or selling UK property to ensure the structure and timing of ownership are the most appropriate for the individual client circumstances.  Please contact a member of our team, or your usual Mercer & Hole contact, if you wish to discuss this.



Date: 7th May, 2015
Author: Liz Cuthbertson


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