An overseas investor can make a choice between owning property personally or through an offshore company.
Owning Personally
UK Income Tax
If the property is used for letting, the individual can register as a Non-Resident Landlord (NRL) and providing approval is received from HM Revenue and Customs (HMRC) the rental income can be received gross. This prevents the deduction of tax on rents at source and offers a cash flow advantage as any tax due is paid on the normal tax payment dates (January and July each year).
If an individual fails to register as a Non-Resident Landlord, the tenant or letting agent must withhold income tax at the basic rate (currently 20%) from the rental payments. The income tax withheld is then paid over to HMRC.
After the end of the tax year (5 April), a Non-Resident Landlord tax return is filed with HMRC which declares the rental income and enables a claim for expenses in connection with the property to be set against the rental income. Any remaining tax liability is paid over to HM Revenue & Customs.
UK Capital Gains Tax
Capital Gains Tax (CGT) is only chargeable on UK Resident and/or Ordinarily resident individuals. As long as Non-UK residence is maintained, CGT (in the UK) is not payable.
UK Inheritance Tax
Inheritance Tax (IHT) is payable on assets which are situated in the UK at the time of death. This means that property owned directly by an individual would be potentially liable to IHT.
Other Taxes Worldwide
You will need to consider if you also have a liability in your country of residence for all of the above – most regimes will provide for some measure of double tax relief if you have paid tax in the UK as well. Individual advice needs to be sought
Owning Through an Offshore Company
UK Income Tax
The income tax treatment is the same as when the property is owned personally. The rents would be declared through the Non-Residents Landlord tax return with the tax being paid in January and July each year. The return would be filed after the end of the tax year (5 April).
UK Capital Gains Tax
As long as Non-UK residence status of the company is maintained, CGT (in the UK) is not payable.
Care is needed however to ensure offshore company is operated correctly and does not become managed or controlled in the UK. Should this happen it would expose any gain on the disposal of the property by the company to UK corporation tax.
UK Inheritance Tax
If the property being acquired is of significant value then it may be better to consider buying the property through an offshore company. As the shares are owned in an offshore company they are not treated as a UK asset and thereby not subject to UK Inheritance Tax.
Other Taxes Worldwide
There is also a need to consider the tax rules of the country where the overseas company is registered. In particular, the tax position of the company and how the extraction of funds from the company could be taxed in the country where the shareholder is resident should be reviewed.
For more information please contact our Private Client Manager Paula Jeffs on 01727 838 255.
