Can offshore companies buy and own UK property?

UK property is a world-renowned asset class, with investors from all over the world seeking to acquire real estate in the country. But can offshore companies buy and own UK property? It’s a popular option for investors from other nations. Let’s take a more detailed look.

Part of the appeal of UK property is the sustained history of outperforming other asset classes through high capital appreciation and regular strong yields – and you can learn more about the market fundamentals in our UK property prices article.

In fact, the surge of overseas interest in recent years has contributed to the supply-demand imbalance and the high return on investment, particularly in prized locations such as central London.

However, there is a secondary pull for overseas investors – the ease with which they can complete an overseas transaction. The ease of the opportunity itself breaks down into two further reasons:

Sterling fluctuations

When buying assets in a foreign currency, investors are beholden to wider forex and macroeconomic trends. In recent years, particularly since Brexit in 2016, overseas investors have found themselves with more purchasing power. USD buyers in particular have secured up to a 33% swing in valuation and purchase price at times in the past 5 years.

Transactional transparency

People from almost any unsanctioned nation can purchase real estate in the UK and the process is open and relatively simple. A big part of the appeal is the ability to acquire assets both personally and as part of an overseas company. Land Registry statistics show that almost 100,000 international companies own UK real estate.

Using an offshore company as an overseas investor to buy UK property

Given the volume of offshore companies owning UK property assets, you’d probably be safe to assume it’s a very popular option for people from other nations looking to invest in Britain.

We’ll now list some of the pros and cons of doing just that. It is worth noting that it is generally considered more expensive to transfer a property to offshore company ownership at a later date, so know what you want to do before investing in the UK.

Tax implications of using a limited company to buy UK property

Note, Tax is a complicated and specialist subject. Here, we’ll generalise and point out some of the major considerations. Of course, the actual levies and charges you are subject to can depend on your own situation and nationality. It is always advised that you speak to a tax specialist for thorough advice before making any major financial decisions.

Usually, you can minimise capital gains tax with an offshore vehicle. Any property owned by a non-UK company is exempt from capital gains tax. However, bear in mind, that if you own many UK properties, you could become liable to pay capital gains tax as this acts as a gesture of operating a trade in the UK.

For further context, capital gains tax is a UK tax on the profit you make when you sell (or ‘dispose of’) an asset that’s increased in value during your ownership of it. It’s important to note that it’s the profit you make that’s taxed, not the amount of money you sell the property for.

For example, you acquire a property for £250,000 and sold it later for £350,000. This means you are taxed £20,000 (£25,000 minus £5,000).

How much depends on your status and circumstance, but in general the charges are:

  • 28% on residential property
  • 20% on other chargeable assets

The ‘dispose of’ terminology is important too.

For the purposes of capital gains, ‘dispose of’ includes:

  • selling it
  • giving it away as a gift, or transferring it to someone else
  • swapping it for something else
  • getting compensation for it – like an insurance payout if it’s been lost or destroyed

A property can be sold by selling the shares in the company and ‘selling’ it in this manner could result in substantially less or no UK capital gains tax to pay. Similarly, the new purchases will save on Stamp Duty Land Tax payments.

However, if you acquire a property by purchasing the shares in a company bear in mind that you could be acquiring a liability to pay capital gains tax on the latent gain in the company built up during the seller’s ownership. Thi sis usually triggered on the next sale of the property.

An offshore company can also reduce inheritance tax payments.

Inheritance tax is payable by the estate of an individual on their death as it is passed on to a new owner – family members for instance.

Generally, inheritance tax is 40% on the net value less an exempt amount currently £325,000, so in theory, it can be a large saving. Please note, it is specifically stated that the offshore company cannot simply be set up for such “see-through” purposes

Offshore ownership doesn’t prevent you from being liable for the income tax you’ll pay on any rental payments accumulated by your UK property, but it can mitigate the loss.

If the property is owned by an offshore company only the basic rate of UK income tax (20%) will apply regardless of the level of income. This could usually be 40 or 50%.

Furthermore, you can apply to Her Majesty’s Revenue & Customs for a clearance that will enable you to receive the rental income gross

Other main benefits of using an offshore company:

There is also a certain amount of personal and identity privacy inherent to UK property purchases using offshore companies. Normally, public property information allows anyone to look for information about any property including the owner.

When an overseas company acquires UK property, these public documents include the company’s name as the new owner not the owner of the company.

Disadvantages of using an offshore company to invest in UK property

You are setting up a company.

This is not normally an easy undertaking – especially for the inexperienced and any set-up and running costs may not make it profitable.

Also, a company is a company and it is this company that will own the property, not yourself. This does potentially mean you could risk losing the ownership of the property if the company encounters issues or ownership struggles. In regard to selling your property, it generally takes a lot longer to sell a company than a property, so you may face cash flow issues if you really need to have access to the sale funds.

Furthermore, note a specific payment associated with owning UK property via companies. Since April 2013 a company (whether offshore or not) that owns a residential property in the UK that is worth more than £2 million will be liable for an annual charge.

The amount is set on a sliding scale that accounts for the market value of the property. Again, there are many nuances involved with this charge and there are certain exemptions.

The process of buying a UK property with an offshore company

As mentioned, buying and selling property in the UK is very transparent and is recognised the world over as a fair and responsible system.

The process of buying in the UK is very similar to many other territories and is largely unaltered whether the purchaser is an individual or a company:

  • Searches are conducted on the property. This allows you to be sure the seller owns the property, it is legally built and tells you if there are any existing charges associated with the property.
  • A contract is drawn up and agreed – here, it will be specified the property will be owned by a company
  • Deposits are paid
  • The balances are paid and the title deed is signed and then registered at the Land Registry – again, with the company registered as the owner

Stay up to date and do your research

Despite complications and drawbacks, offshore company purchases of UK property general remain a route to maximise profits in a real estate market known the world over.

That said, serious penalties can be issued should an investor get this wrong and professional advice is always recommended. It is particularly important to take stock of your own personal circumstances and ensure you’re always up to date on any recent tax changes that affect property purchases in the UK and the specific territories that you reside in.

Property fundamentals remain key – even with offshore company purchases

Of course, despite the potential advantages of using an offshore company, the most surefire way to make sure your UK property investment succeeds and is profitable in the short, mid and long term is to acquire a robust and something asset in a location and market.

As longstanding experts in UK property investment, Chestertons not only has an intricate understanding of what makes a successful acquisition, but actively sources these opportunities to make investment easier for those overseas.

We currently have properties for sale in the UK in the most prized markets of London as well as Manchester and Birmingham. Should you be interested in adding UK property to your portfolio, please get in touch and we can discuss your needs and requirements.

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