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People from all over the world own UK property and those who want to protect their privacy often do this through an overseas entity, usually a company.
There are currently 93,877 properties owned in this way in England and Wales according to Land Registry data. During the past 10 years, 58,426 such properties have been added.
Keeping your name off public records comes at a cost: non-resident companies automatically pay 15 per cent Stamp Duty Land Tax (SDLT) when buying residential property of over £500,000. Personal buyers pay the maximum rate of 12 per cent on property values of £1.5m though most personal buyers in the UK pay just 2 per cent or 5 per cent.
There is nothing wrong with owning UK property via an overseas company, as there can be legitimate commercial or personal protection reasons involved.
Nor is such ownership blocked by new rules which, after a hiatus, the government is now introducing rapidly.
The Economic Crime (Transparency and Enforcement) Act 2022 received Royal Assent this month: the aim is to increase transparency, something which remains high on the government agenda.
In addition to changing the rules about sanctions, the Act introduces a new requirement for overseas entities owning UK property to register at Companies House and provide details of beneficial owners. Criminal offences may be committed by those who fail to comply or who provide incorrect information.
The register will be publicly available at Companies House. However, HM Revenue & Customs will have access to more details than are publicly available and will be able to cross reference this against other government databases.
It is therefore prudent to check that both companies and beneficial owners are UK-tax compliant in all periods since the property’s original acquisition.
The new law builds on a 2016 requirement for corporates to declare at Companies House who exerts significant influence and control. The intention is to make it easier for everyone to know who is the ultimate beneficial owner of overseas entities with UK land interests and dissuade those planning to buy UK property with illicit funds.
HMRC, the police and other enforcement agencies consider that overseas entity ownership of a UK property can be used to conceal crime, such as tax fraud and money laundering, so will take a keen interest in the companies that now register. HMRC will feed the information into its Connect system, the data mining technology used to analyse all taxpayer data.
This includes the Common Reporting Standard data on financial accounts and transactions from overseas banks and open source data to identify cases for further investigation.
For example, HMRC is likely to investigate if individuals living in the property are UK-resident for tax purposes. If they are, UK tax may be due on their worldwide income.
HMRC can also assess whether there were taxable “remittances” (usually money transfers) to the UK by non-UK domiciled individuals. Questions about the source of funds to purchase a property can often arise. Overseas landlords will be taxable on UK rental income.
HMRC will also want to check whether any annual tax on enveloped dwellings (ATED) is due; this is generally payable on residential property with a value of more than £500,000, where an individual occupies a UK property and is connected to the company that owns it.
The new law applies to overseas companies, partnerships and foundations. Overseas trusts owning UK land directly — without another entity in the ownership structure — are not required to register with Companies House. These trusts already register and declare beneficial owners under the HMRC’s Trust Registration Service.
The requirement to register will apply to freehold property and land, and leaseholds of longer than seven years. When in force, overseas entities must register before acquisition. Transitional rules broadly require registration within six months of the rules coming into force.
Under the Act, officers of overseas companies must take reasonable steps to identify any registerable beneficial owners and provide the information to Companies House, complete an annual return and request removal from the register at the appropriate time.
Overseas entities must issue “information notices” to anyone that they know or have cause to believe are beneficial owners, and the recipient must respond within one month. Share ownership or voting rights of more than 25 per cent will put someone in the “beneficial owner” category, along with all directors.
Failure to register is a criminal offence for the overseas company’s directors. Other offences can be committed by the beneficial owners for failure to comply.
For those who have not complied with tax rules, full voluntary disclosure to HMRC is the best approach. It is sensible to take expert tax advice: there may be penalties but disclosure usually minimises these.
Current UK tax rules mean that where a property is sold by an overseas company, there will be UK tax issues to consider from capital gains tax for the company to possible ATED charges. If the owner wants to “de-envelope” the property and hold it in their own name in future, then there is also the stamp duty to consider and possibly an income tax charge if the property is simply transferred to the owner -likely to be treated as a dividend “in specie”.
The new register will give the authorities more data to track UK property and its owners than ever before. An increase in resources for Companies House and the Land Registry will be crucial to ensure the processes are smooth.
HMRC and other enforcement agencies will also need more skilled investigators to “join the dots”. There are always methods and places for criminals to hide in the world, but this will make it much harder for UK property to be used for such ends.
Dawn Register is the head of tax dispute resolution at accountancy and business advisory firm BDO.
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