The nation's obsession with bricks and mortar has been well documented and seems unlikely to alter anytime soon.

However, obsession does not stop at the UK border and prime property transactions are being driven by non- UK resident individuals. Whether other factors are at play, currency hedges, perceived domestic risk/instability in the non-resident's own country can be argued about, but certainly non-residents are active in the market.

Acquiring UK property

Those with sophisticated knowledge will have heard of, and may well understand, Sharia mortgages, SDLT mitigation, special purpose vehicle planning etc. All of these elements can have a bearing on how purchases are structured, but in essence the choice an overseas investor can make is actually between direct property ownership and ownership through an offshore company.

Direct property ownership

Where investors have cleared funds, with no need for debt to make acquisitions, individuals have acquired UK residential property directly. This normally occurs where the transaction is investment in nature, and where the individual is in a low tax jurisdiction with a settled pattern of residence there.

For the non-UK investor income tax is not payable in the UK, unless income arises from the letting of the property.

If the property is used for letting, the individual usually registers as a non-resident landlord (NRL) and receives rental payments gross. The effect is to stop deduction of tax on rents at source, leaving the individual to file tax returns at the normal tax return dates and pay tax at the normal tax payment dates – a far better position for cash flow and planning purposes.

UK CGT is only chargeable on UK resident or ordinarily resident individuals. So, provided non-UK residence is maintained, CGT (in the UK) is not payable. However UK IHT is payable on assets which are sited in the UK at the time of death. This means that property owned directly would be potentially liable to IHT, whereas shares in an offshore company would not be.

Ownership through an offshore company

If direct ownership is so straightforward, then why opt for ownership through an offshore company? Broadly, if the property value is large, if UK SDLT is significant, and where direct ownership means exposure to IHT, then the use of a nonresident company can be more favourable. If income is derived from the letting of the property the overseas company will usually register as a NRL, again enabling rents to be received gross.

However, there are some pitfalls to be aware of. For example, if offshore structures are not operated correctly, a non-UK resident company that is not incorporated in the UK becomes subject to UK corporation tax when it carries on business in the UK. Care is required to maintain a non-UK resident profile – the company must not be managed and controlled in the UK. Failure to achieve this would expose any gain on the disposal of the property by the company to UK corporation tax.

There is a need to monitor the tax status of the jurisdiction of the overseas company as tax regimes change. In fact they move rapidly. Care is required when acquiring property in a company resident overseas. A watching brief will be required with reference to the tax position for the company and that on the extraction of funds from the company to the jurisdiction where the shareholder is resident.

Property development

The position is different for property development. Where this occurs the development is likely to be regarded as a permanent establishment and therefore a trade subject to income tax in the UK (when held personally) and corporation tax (when held via a company).

In addition, the range of taxes will need to be considered including VAT and inheritance tax, as well as anti-avoidance rules where investment or development occurs.

Conclusion

There is no single route for property ownership, but the basics are straightforward. Usually there are valid reasons for complexity, but if you are unsure about a structure, whether advising or investing, you should speak with your adviser. Tax is rarely the driver for these investments, but it is often the biggest ongoing cost and it is surprisingly easy to trip up.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.