Corporate Ownership Of UK Residential Property

Historically, the ownership of a UK residential property through a corporate vehicle offered a host of UK tax protections. Not least protection from Inheritance Tax for offshore company structures.

A raft of legislation has been introduced over the years that make ownership through a company much less attractive and de-enveloping property has gained traction as a result.

Punitive tax charges have been introduced starting with higher corporate rates of Stamp Duty Land Tax (SDLT) on purchases of residential property in the UK. While SDLT rates for individual buyers are calculated on a sliding scale, corporate buyers face a flat rate of either 17% or 19% depending on the company’s residence status.

Any occupation of a property by an individual connected to the company gives rise to an ATED charge (Annual Tax on Enveloped Dwellings). A flat rate is charged annually based on the value of the residence at the relevant valuation date. A property valued in excess of £500,000 is subject to a fixed charge of between £4,450 and £292,350 depending on its value. A property valued between £5million and £10million will have an annual ATED charge of £72,700.

In addition to the ATED charge, a family member occupying the property could face an income tax charge on the value of the rent-free accommodation. The income tax charge can be avoided by the payment of a market rent, but this is hardly an ideal scenario!

Historically, one of the main drivers for holding UK property in a company was the Inheritance Tax protection. All UK residential property has been within the scope of IHT since 2017 including those held in offshore companies. Certain loans used to finance the purchase of UK property are also now within the scope of IHT.

Owning UK property through a corporate vehicle can offer a level of privacy for the owner but at the expense of significant UK taxes for the company and owner occupiers. In light of the punitive tax charges above, de-enveloping should be considered although the tax consequences should be understood before any action is taken.

To learn more, click here or contact the private client team at privateclient&trusts@haysmac.com.

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Images: Haysmac.