Brexit implications for foreign property investment

Steve Wheeler, Private Client Tax Partner at Moore Stephens, assesses the potential implications for foreign property investment into the capital brought about by the ‘Leave’ vote

The uncertainty caused by the Brexit vote is not good news for owners of residential property in London. This comes after the announcement of proposed tax changes that will take effect from April 2017. Brexit may further delay details being available on these tax changes and this will leave little time to restructure property holdings before 6 April 2017.

In the meantime the right structure largely depends on the taxpayer’s residence and domicile position, and on whether the property is being acquired to live in or as an investment.

For non residents, the advantages of holding UK investment property through overseas companies have been reduced as the income tax liability at 20% on rental income is no longer less than the corporation tax liability of a UK company. Similarly, closely controlled non-resident companies are now liable to capital gains tax (CGT) on residential property in a similar way to residents.

If the shares in a company are sold rather than the property then no CGT cost will arise on a non-resident shareholder, and for the purchaser there is potentially a Stamp Duty Land Tax (SDLT) saving. In addition, from a due diligence perspective a UK company may be more attractive to a purchaser.

Currently a non-domiciled individual can protect UK residential property from inheritance tax (IHT) by holding it via an offshore company. However, from 6 April 2017 this will no longer be possible.

In the past, offshore companies have sometimes been preferred to UK companies for confidentiality reasons, but forthcoming changes on beneficial ownership disclosure will make the choice neutral.

Corporations still have their place in owning UK residential investment property. There is relief from the annual tax on enveloped dwellings (ATED), unlike if the company owned a property that was being lived in as a residence by the effective owner. It is anticipated that residences will be increasingly owned directly by individuals following the above proposed IHT change. Every case requires bespoke planning and early advice should be taken to ensure the right structure is established from both a UK and an overseas tax perspective.

The uncertainty caused by Brexit and the continuing delay in announcing tax changes will no doubt impact upon the levels of investment in UK residential property but may also affect those planning to come to the UK and leave the UK in the future. Thus damaging the UK economy - at least in the short term.

To discuss, please contact Steve Wheeler, Private Client Tax Partner at Moore Stephens (steve.wheeler@moorestephens.com)