UK: UK Publishes Draft Legislation On Offshore Companies Which Own UK Property

The consultation document entitled "Ensuring fair taxation of residential property transactions" was published in May this year. As always whenever the UK Treasury or HMRC refer to "fair taxation" what they really mean is "considerably increased taxation". The resulting draft legislation was published on 11th December outlining the new taxes and charges which will have to be paid by offshore companies which own property in the UK. There have been some significant changes from the consultation paper. There is still a small chance that there will be alterations before the enactment of the actual legislation in April next year but no further surprises are expected and it would be unusual if there were any more changes. Property owners should plan accordingly.

The main features of the proposed legislation will affect properties which either are, or will become, valued at more than £2 million and which are owned by "non-natural persons". This is a reference to companies, partnerships, funds and the like, not to persons with strange personal habits.

Previously many buyers of UK property have chosen to register their properties in the name of an offshore company in order to eradicate UK inheritance tax (IHT) which would otherwise be charged at 40% on the whole value of the property , after allowances, upon the death of the owner. As a company never dies the asset becomes the shares of the company which is a non UK asset and therefore not subject to UK IHT as long as the owner is not UK domiciled. Owners who are UK domiciled are subject to IHT on their worldwide assets so the tax catches the whole estate. Many UK expatriates will remain UK domiciled despite living abroad for many years. Offshore company ownership also facilitated the avoidance of stamp duty (SDLT) as any subsequent sale of the property could be effected by a transfer of the shares in the company leaving title to the property in the UK unaltered. This would mean the incoming purchaser avoided SDLT and allowed the seller to charge more or made it easier to sell as it was cheaper for the buyer, or a bit of both.

Offshore companies which own property worth over £2 million will now be faced with:

  1. An annual charge of a minimum of £15,000 and a maximum of £140,000 depending on value. The new tax is called Annual Residential Property Tax (ARPT).
  1. Capital Gains Tax (CGT), which was previously not paid by non UK resident sellers whether they were individuals or companies, will be charged on resale at a rate of 28%.

New offshore company purchasers will pay stamp duty at 15% whereas natural persons will pay stamp duty at the bargain rate of only 7%.

A transfer of property to an individual or individuals (presumably the beneficial owner or owners of the company) who own the company will avoid these charges but expose those individuals to UK inheritance tax at 40% so this is an option which will appeal only to the very young and very healthy who are quite certain of their own longevity. For those less certain of their own mortality this will not be a sensible option. It is possible to cover the liability by life insurance but actuaries have of solvent life insurance companies have got it right. You will pay more than you receive so this is an expensive option which normally appeals most to life insurance salesmen.

The good news is that there are exemptions from the above taxes. The main one of these is that corporate trustees are not subject to these new taxes. For most, transferring property already owned by an offshore company to an offshore trust will be the most cost effective way forward. For new purchasers making the purchase via an offshore trust will be best. There is also an exemption for bona fide business assets owned by companies. This would apply where the property is rented out exclusively and entirely to third parties. The problem here is that even a single day of occupation by anyone connected with the company at any time when that company owned the property would cause the exemption to be lost so this is somewhat inflexible and inherently risky.

Luckily, there has been one change to the original proposals. CGT will be based upon the difference between the sale price and the presumed value at April 2013. Originally the CGT was to be based upon the original acquisition value and resale price. This is obviously an improvement for those who purchased a long time ago and have seen the value of their investment rise considerably. Even those who have bought unwisely will have made a big paper profit so this is welcome news but would not seem to make much difference to the correct structure going forward.

Trustees who hold UK assets are subject to the ten year anniversary charge which could be as much as 6% of the value of the property but this charge is only made on the equity on the property. The equity on the property is the difference between the property value and any loans against the property. It is therefore recommended that the properties be laden with debt whether that be loans from a bank or from loans injected by the Settlor or other persons associated with the trust.

Between now and April 2013, properties can still be transferred to a new structure without CGT applying. After April any changes in ownership are likely to result in tax consequences and the annual charge will start biting. In summary, there is a brief window when action can be taken at minimal cost to avoid future CGT and ARPT so urgent action is required. Prevarication or inaction is likely to result in significant additional costs.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.