Offshore companies owning UK residential property
In this episode, Ami Jack Head of National Tax and Susan Roller a Partner in our Private Client Tax team discuss offshore companies owning UK residential properties and key considerations you need to be aware of, including those arising as a result of the planned increase in corporation tax.
Key discussion points to note in this episode:
- Offshore companies have been subject to a series of tax changes for the last 8 years and the corporation tax increase in April 2023 to 25% also affects all these companies.
- The new 25% rate applies to all non-resident companies regardless of the level of rental income – this is an increase from the current rate of 19% and will apply on any gains on sale.
- If you’ve got a UK residential rental property in a company that you are considering selling, think about exchanging contracts pre 1/4/23 so gain taxed at 19%. The Capital Gains Tax (CGT) will be based on market value at April 2015, which could be 20% gain on average. The 7.8% indexation allowance (April 2015 to when stopped in Dec 17) wipes out half the gain and legal costs and agents costs may cover some of the rest.
- For some, it may be worth considering moving the management and control of the company to the UK so ‘normal’ rates of Corporation Tax apply if rents are lower (under £50k). The 25% rate of tax could still apply if there are large gains on a sale. It might be possible to transfer the property at no tax cost to a UK company but tax on gains and Stamp Duty Land Tax (SDLT) will need reviewing.
- If a company is paying Annual Tax on Enveloped Dwellings (ATED) (£59k for £5m+ , £118,6000 for £10m, £237,400 for £20m ) the tax cost to unwind may only be a few years of ATED costs. Moving forward, private residence relief might be available at personal or trust level to cover future gains.
- If you rebase to April 2015, you’ll need a valuation. For ATED, properties will need to recheck bandings based on April 22 values for paying ATED in April 2023 so it fits in well to get valuations for both at once. Some may have already got an April 15 valuation when ATED was lowered from £2m to £500k.
- Given the fact that everyone has the same April 2023 deadline it makes sense companies review their long term plans and, if they are happy retaining the property, consider whether the current structure is the best one for tax purposes. There may, of course, be many reasons the property should be kept in a company!
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Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice before making decisions. HMRC Tax Year 2022/23.
This S&W The Pulse podcast is of a general nature and is not a substitute for professional advice. No responsibility can be accepted for the consequences of any action taken or refrained from as a result of what is said. The views expressed are not necessarily those of the presenter or of Smith & Williamson or any of its affiliates. No reproduction of this podcast may be made in whole or in part for professional or recreational purposes. No action should be taken based on this podcast and we accept no liability if we change your views on any of the subjects mentioned.
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