UK: Our Tax and Structuring Services for UK Real Estate Investment

Last Updated: 24 August 2016
Practice Guide by Verfides

Verfides has developed considerable experience and expertise in the tax-efficient structuring of UK real estate acquisition and development.  We bring together our experts in international and UK taxation, trusts and company formation and management to provide a bespoke service for real estate investors all over the world.

Tax advice on acquisition, development, rental and disposal

It is essential to take professional advice from the outset, as UK real estate transactions are potentially exposed to a whole host of UK taxes:

  • Income tax on rents
  • Income or corporation tax on development profits
  • Capital gains tax on sale or reorganisation
  • Stamp Duty Land Tax on acquisition
  • Inheritance tax (IHT) on death or gift (or periodically for trusts)
  • Annual Tax on Enveloped Dwellings (ATED) for certain high value residential properties
  • VAT on the acquisition of commercial property or on development

We can help investors and developers navigate through complex tax law to ensure that the most tax-efficient structure is chosen for investing in, developing and holding UK real estate.  In many cases certain taxes can be mitigated or entirely eliminated by implementing the right structure from the outset.

Residential and Commercial Rental Properties

Although the tax treatment of UK rental receipts may initially appear straightforward, there are many planning opportunities.  Our advice would typically focus on:

  • Limiting income tax rates and liabilities on rental streams, through use of an appropriate holding vehicle
  • Minimising UK capital gains tax on a future sale (for non-residents)
  • Securing maximum tax-deductible expenses, particularly in the form of loan interest in respect of investor loans
  • Eliminating UK withholding taxes on interest payments
  • Enabling UK resident non-domiciled individuals to remit non-UK income and gains tax-free to fund a commercial rental business
  • Eliminating or reducing exposure to UK IHT
  • For residential property, advising on securing an exemption from the ATED regime for property being let or developed on a commercial basis
  • VAT advice including advising on Option to Tax for commercial or mixed-use buildings

Private Residences

The purchase of residential property for owner-occupation can bring specialist tax considerations, particularly at the higher end of the market.  New tax rules for high value residential properties held through companies have served to make this area more complex, so that our advice would normally focus on:

  • Level of exposure to the ATED regime (including advising on exemptions from ATED)
  • Mitigation of IHT and consideration of the impact of proposed legislative changes in this area
  • Capital gains tax mitigation, including advising on the applicability of Principal Private Residence Relief to individuals and trustees
  • Minimising risk with regard to Shadow Director and benefit-in-kind issues for private occupation within certain structures
  • Advising on the tax position of family trusts, often non-resident, particularly where there are UK-resident beneficiaries occupying UK trust property

Property Developments

With property developments, tax exposure will be in the form of trading profits rather than capital gains.  We frequently advise on:

  • Eliminating or reducing UK income or corporation taxes on short-term developments through the use of appropriate structures using tax treaty planning
  • Advising on the implementation of UK-based property development arrangements on behalf of offshore developers without compromising overall UK tax exposure
  • Advice on maximising VAT recovery and VAT on eventual sale
  • Advising on tax efficient funding structures for developments

Collective Property Investment Schemes

Because of the global attractiveness of the UK property market, collective investments have become a popular choice for investors looking to pool capital and risk.  We advise principally on:

  • Bespoke collective investment schemes for small groups of sophisticated investors
  • Advising on the appropriate collective investment vehicle to achieve optimum tax efficiency both at the level of the UK investment and at investor level
  • Advising investors on maximising double tax relief claims in respect of UK tax liabilities
  • Minimising tax at UK level through structuring investor borrowing
  • Advising on any UK regulatory issues for collective investor schemes

Entity formation and management for Real Estate investments

Verfides does not only provide initial tax structuring advice but provides a seamless service by also forming and managing the chosen vehicles, including:

  • Companies, both in the UK and overseas, including in EU and non-EU low tax jurisdictions (both to own property beneficially and as nominee)
  • Limited Partnerships in England, Scotland, Ireland and elsewhere
  • UK Limited Liability Partnerships
  • Private funds for bespoke collective investment schemes which often benefit from tax exemption at fund level

Verfides can also provide company directors, nominee shareholders, company secretary, registered office and registered agent services in respect of companies they administer.

Tax Compliance and Accounting

Verfides is able to offer a full accounting and UK tax compliance service to property investors, with a large team of qualified accountants and tax consultants.  All individuals letting or developing UK property will have UK tax filing obligations (whether or not any tax is due) and furthermore all entities should prepare accounts, whether or not required by statute in the jurisdiction of incorporation, for corporate governance purposes.

Non-Resident Landlord Scheme (NRLS)

The NRLS is the mechanism by which HMRC collects the tax due on the UK rental income of non-resident landlords, whether individuals, partnerships or other legal entities.  The scheme requires UK letting agents or tenants to deduct basic rate tax (currently 20%) from rental income they collect on behalf of non-resident landlords and pay this tax over to HMRC on a quarterly basis.

Rather than suffer this cash-flow disadvantage, and the possibility of overpaying tax, it is possible to apply to HMRC for approval to receive UK rental income with no tax deducted.  Verfides has assisted many clients with successful applications under the NRLS. 

Annual income tax / corporation tax returns

Whether or not a landlord is receiving rents gross, an annual UK income tax or corporation tax return must be filed, whether or not tax is due.  This applies for resident and non-resident individuals, companies and other entities. 

Verfides can register landlords with HMRC and take care of their annual tax filings.  It is important that professional advice is taken as the computation of rental profits must follow generally accepted accounting principles, and there are a number of important reliefs which can be claimed. 

VAT advice, registration and compliance (including Option to Tax)

Verfides can provide advice in respect of all VAT issues in respect of the acquisition, development and sale of property. Where appropriate we may advise that a landlord “opts to tax” a commercial or mixed use building in order for input VAT to be reclaimed, and arrange application to HMRC in respect of the option.

Verfides can also provide VAT compliance services including the provision of VAT agent, VAT registration, preparation and filing of VAT returns (often quarterly, but even monthly where this expedites cash-flow on VAT reclaims), liaising and corresponding with HMRC and handling VAT inspections.

Annual Tax on Enveloped Dwellings (ATED)

UK Residential properties valued in excess of £500,000 owned by companies and some other non-natural persons are liable to pay an annual tax charge ranging between £3,500 and £218,200 if they do not qualify for one of the available exemptions (please ask us for further information on the ATED regime).

Entities falling within the ATED regime are required to file an annual ATED return.  Even if an entity qualifies for one of the exemptions, an ATED Relief Declaration Return will still need to be completed each year.  Verfides is able to assist with annual ATED filings and the claiming of applicable exemptions. 

This document is not intended to create an attorney-client relationship. You should not act or rely on any information in this document without first seeking legal advice. This material is intended for general information purposes only and does not constitute legal advice. If you have any specific questions on any legal matter, you should consult a professional legal services provider.

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Useful Resources
Use supplementary pages SA105 to record UK property income on your SA100 Tax Return.
When you start renting out property, you must tell HM Revenue and Customs (HMRC) and you may have to pay tax.
Use online form service or postal form (SA700) to file a tax return for a non-resident company.
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