Having endured very little movement in UK residential property due to Brexit negotiations and now the unprecedented position faced as a result of COVID-19, you'd be forgiven for wondering if there will be any inward investment into the UK in the foreseeable future. This might however be a rather short-sighted view.
I was kindly invited to a recent webinar last week focussing on UK residential property in in light of COVID-19. The message was that whilst activity has dropped, the big residential agents are standing by their forecasts particularly in London - Savills maintain a 20% cumulative growth in the next 5 years whilst Knight Frank do not foresee a fall in prices in Prime Central London this year and actually predict an 8% growth next year. With record low interest rates, there is a huge opportunity for those looking to borrow and buy, but how should you own?
Changes to offshore ownership
Non-UK doms owning UK residential property through an offshore structure are now subject to much the same taxes as UK-doms and, in some circumstances, may have to actually pay more tax by owning via an offshore structure.The last 5 years have seen major changes to the taxation of offshore structures previously used by non-UK domiciliaries to own their UK residential property. I certainly don't propose covering all these changes in this article but suffice to say that they have had a huge impact.With the possible introduction of beneficial ownership registers wiping out any confidentially benefit and the increasing powers under UK Court orders (divorce or litigation proceedings) to attack assets in offshore structures, non-UK doms should be considering personal ownership for UK residential property.
Personal Ownership
Buying in your own name is the simplest and most straightforward form of ownership in the UK. The Land Registry title register records you as the new freehold or leasehold owner along with any mortgage or charges against the property.UK Land Law allows for multiple owners of one property and also differentiates between the “legal title” and “equitable title”. In essence, the legal title is the actual ownership of the property with the rights to sign transfer and charge deeds for the property.The equitable title is the value of the property and the benefits from the property's appreciation in value. The Land Registry currently permits 4 registered owners to be listed at Land Registry, however ownership can be by many more legal and equitable owners. Your lawyer can prepare documentation to set out, for example, several owners within the same family and record their shares/percentages. Each owner then has their own personal UK tax allowances.If you do buy in personal name, it is vital that you put in place a UK only Will. This ensures the asset passes to where you want it to when you die or in accordance with the succession rules your faith may dictate such as Sharia Law. Without a Will, the asset passes under the UK's intestacy rules and may not pass where you want it to. A Will also allows you to take full advantage of UK inheritance tax reliefs available to individuals.
Tax
One important aspect of personal ownership is that there are no ongoing taxes as such like the Annual Tax on Enveloped Dwellings for nonrented residential properties owned by an offshore company. Similarly there are no annual offshore director or trustees fees to pay which, depending on your service provider, can be an expensive annual cost.Personal ownership also means the individual owners are still liable to capital gains tax (CGT) on any sale or gifting of the property, but again this can be somewhat mitigated by wrking with your advisers.SDLT is still payable when you buy in personal name, however the rates are calculated in a different way and may, depending of your personal circumstances, work out less than in an offshore structure.For most of my clients, the biggest concern is inheritance tax which is payable of the death of the owner and is currently 40% of the property value (less debts secured against the property and also tax reliefs). In many cases, the family may be forced to sell the property in order to pay the tax due. There are however a variety of ways to mitigate or even wipe out the tax in its entirety by working closely with your advisers. In respect of my own client base, I have found that the ability to put in place measures to mitigate UK inheritance tax and the dwindling benefits of offshore ownership has led to an increase in personal ownership.
Conclusions
Clearly not all buyers will want to own UK residential property in their own name and there may be underlying reasons to use an offshore ownership structure. However, the days of non-UK dom buyers simply buying in a “one solution fits all” offshore structure has gone and buyers need to work closely with their advisers to achieve their objectives.What is clear is that for non-UK doms looking to benefit from the current UK residential market, increased scrutiny into and taxation of offshore ownership structures make personal ownership much more interesting, especially if UK inheritance tax can be mitigated with careful planning.
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.