With many of the tax benefits of owning UK property via offshore companies coming to an end and values having been static or even decreased since 2015, now may be a good time to transfer such properties into individual names. Christina Antonas and David Baker look at the benefits of doing so.
Non-resident companies (offshore companies) became liable to pay Capital Gains Tax on any residential properties after 6 April 2015, with the gain being calculated on the value at that date.
Now the government has issued draft legislation with plans to make this applicable to the disposal of commercial property, too.
The government is planning to introduce these new rules in April 2019. This will mean that non-residents (including individuals and off shore companies) will be subject to tax on gains arising from disposals of:
- UK land interests (now to include commercial property); and
- Assets which derive 75% of their gross-asset value from UK land, where the person disposing has a “substantial indirect interest” in that asset. A “substantial indirect interest” basically means that the person has held at least a 25% interest in the asset at any point in the previous two years.
Given the current property market and property values, it is unlikely that values have increased since 2015 (if at all in some areas, or perhaps have even decreased). If a property is transferred from the non-resident company to an individual, hopefully no, or very little, CGT would be payable as the gain is calculated from 2015 to the date it is transferred.
Perhaps then it is a good idea for non-resident companies to take advantage of the current market values and transfer properties from company names into individual names. This is done via the liquidation of the company and the transfer by the liquidator to the beneficial owner of the shares. The many tax benefits of once owning UK properties via an offshore company seem to be coming to an end as HMRC want to charge Inheritance Tax on the value of the property in the UK on the death of the beneficial owner.
If the property is transferred pursuant to the liquidation, Stamp Duty Land Tax will not be payable. For tax purposes, this seems like an opportune time to transfer properties out of non-resident companies and into individual names. If the property is transferred into the individuals’ name, that person’s CGT liability will then start to be calculated from the date the property is transferred into their name. They will thereby be reducing any potential future gain. This will not be the case if the property remains in the non-resident company name, values start to increase and it is sold or transferred at a later date. The other advantage is if you own a property through an offshore entity and it is not let commercially, then Annual Tax on Enveloped Dwellings (ATED) is payable, which is not the case if the property is in an individual’s name.