Non UK Domiciliaries owning UK Property
It is well known that wealthy foreigners often own very valuable properties in the UK. If it is their main residence then buying in their own name is usually the most appropriate form of ownership but there are many other issues to think about including the UK tax implications.
Funding the acquisition
If the non domiciliary is bringing funds to the UK to buy a property then we need to plan the remittance of the funds carefully to minimise any UK tax charge. After that, there are other aspects to also think about.
The house will be a UK asset and within the scope of the non domiciliary’s UK estate for UK inheritance tax. The non domiciliary may often want to reduce their inheritance tax exposure with a mortgage. If they obtain a mortgage then careful consideration of how to service the interest is required. Additionally, how best to charge the debt is important to avoid unexpected UK tax charges. HMRC has recently announced that security taken on the non domiciliary’s foreign income or gains will bring about a remittance of those income or gains. Maybe the non domiciliary will simply choose to accept the tax cost and take out some life cover to provide a sum on their death to cover the tax charge. We will identify the best solution by consulting with the client on his overall circumstances.
Using a corporate structure
Historically, UK property was often owned through a non UK corporate. High value residential properties owned through corporate entities are now subject to an annual tax charge – ATED (Annual Tax on Enveloped Dwellings). With effect from 1 April 2013, the charge was levied at £15,400 for enveloped properties worth over £2m, rising to £143,750 for a property worth more than £70m. These charges are due to rise significantly following the Autumn Statement. So, for properties caught by ATED in valuation band £2m and over, the charges will be set as follows:
|Value of property on relevant valuation date||
|More than £2 million but not more than £5 million||£15,400||£23,350|
|More than £5 million but not more than £10 million||£35,900||£54,450|
|More than £10 million but not more than £20 millions||£71,850||£109,050|
|In excess of £20 million||£143,750||£218,200|
The ATED regime will also be extended from 1 April 2015 to properties that were worth more than £1m at 1 April 2012 (or on acquisition, if later) with an ATED charge of £7,000. In addition, with effect from 1 April 2016, it will also be extended again to properties worth in excess of £500,000 at 1 April 2012 (or on acquisition, if later), with an ATED charge of £3,500.
In view of the above, corporate ownership of UK residential property, that is not let commercially to unconnected parties, may carry an expensive tag but there are many circumstances that may make that worthwhile and we can guide you through those and the consequences.
Buying a residential investment portfolio to let out
There is no ATED charge where the property is let on commercial terms. The non domiciled client therefore needs to consider the benefits of using a corporate structure if they are is buying residential let property.
If a non UK company owns the UK property, the inheritance tax exposure can vanish. Sometimes, the non domiciliary needs to put a trust above the company and that is also very effective for UK inheritance tax.
Capital gains tax will be payable on disposal of the UK property and the rate payable will depend on which structure is chosen. No one solution fits everyone and again we discuss the long term goals at the outset to fund the most appropriate long term plan.
Date: 14th January, 2015
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