Recent UK tax changes have made owning UK residential properties via companies (known as ‘enveloping’) increasingly more expensive for individuals and trusts who may now wish to extract the property from the company (or de-envelope) and hold them directly. However de-enveloping comes with its own costs and each structure should be considered on its particular facts before a decision is made to restructure.
We are pleased to offer a complimentary initial review of enveloped structures based on the answers given in our short de-enveloping questionnaire. Following completion we will be in touch to provide an illustration of the tax issues at stake and how our team can advise further.
- What does it mean to de-envelope?
Enveloping describes the practice of owning property via an offshore company or other legal entity. De-enveloping therefore describes the act of extracting the property from its corporate ownership and transferring the legal title to the shareholders.
- Why has it become necessary to de-envelope UK residential properties?
In short, tax. Since April 2013 the government has had corporate owners of UK residential property in its sights through the introduction of the Annual Tax on Enveloped Dwellings (ATED); ATED-related Capital Gains Tax and a 15% rate of SDLT on the future acquisition of properties in this way. However enveloping still offered the benefit of inheritance tax (IHT) protection to many international owners of UK residential property. However from April 2017 the IHT rules are to be extended and all UK residential property whether held directly or indirectly via an offshore company or other entity will be subject to IHT. This will therefore remove the final tax benefit for continuing to own UK residential properties in enveloped structures.
- Are there any non-tax benefits of continuing to hold a property in an enveloped structure?
The main benefit is the anonymity owning a property in a company offers the property owner; the name of the company being registered on the legal title to the property and not the name of the shareholder. Many property owners wish to preserve their anonymity for legitimate reasons. However this may be short-lived with the government having published a consultation document in March 2016 setting out its proposals to require foreign companies that own or intend to acquire UK residential property to provide information on their beneficial ownership to be held on a publicly available register.
- How can BDB help?
Our highly experienced Private Wealth and Real Estate lawyers work hand in hand and have extensive experience of working with offshore jurisdictions in relation to de-enveloping exercises. Below is a non-exhaustive list of the services we typically offer as part of our service:
- Advise on the UK tax implications of the proposed liquidation and transfer from the company into direct ownership and any related steps which we consider may assist in minimising the UK tax exposure in relation to that. Our advice would cover potential liabilities for inheritance tax (IHT), capital gains tax (CGT), corporation tax, the Annual Tax on Enveloped Dwellings (ATED) and Stamp Duty Land Tax (SDLT).
- Liaise with the company’s administrators to ensure that the process of liquidation is as much like a UK company liquidation as possible.
- Prepare the transfer documentation. In the case of a leasehold property there may be additional related documentation required (for example, securing the landlord’s consent to the transfer of the lease) and we can also attend to this.
- Apply to the Land Registry, and deal with any other formalities.
- Attend to the CGT, ATED and SDLT compliance on the liquidation.
- Please note that we do not advise on foreign law or foreign taxes.