Investment in property in the UK has experienced a rapid growth by overseas investors in recent years due to increasing property values and a favorable tax regime. However, when investing in UK commercial property it is extremely important to consider the structure of the investment first in order to maximize benefit from this tax regime.
There are various taxes and issues associated with such an investment and each has to be given the appropriate consideration, such as;
- Capital gains tax
- Stamp duty
- Income tax
- Inheritance tax
If you are a non-resident individual or the property is owned via a non-resident company then capital gains tax may not necessarily apply upon sale of the property.
VAT is currently charged at 20% on purchases therefore, it is important to take this extra amount due into consideration when applying for loans in relation to purchases. Companies that are registered for VAT can claim this back. Therefore timing is crucial with respect to registering for VAT especially when incurring interest on loans. Properties that are transferred with existing tenants may be treated as a transfer of a going concern, whereas there may be no need to pay the VAT and then reclaim this. When registering for VAT and thereafter collecting rents it should be noted that this also needs to be charged to any tenants and so can cause problems, however if the tenant is also registered for VAT this can also be reclaimed back.
Stamp duty is currently 4% on purchases of properties. It is however different on purchase of companies and therefore when purchasing a property owned by a company it is always good to look at the option of buying the company as opposed to the property, but this does lead to many other considerations which would need to be examined first.
If the commercial property is, for example, earning rent then 20% corporation tax will be due. It should be noted that in the case whereby the property is owed by a company that third party loans can be taken into account and interest offset against income. It should also be noted that that where commercial property is purchased for the sole purpose of realising profit on its disposal that this might be viewed as income rather than capital gains and the 20% corporation tax may also apply.
Inheritance tax differs greatly depending on whether the property is owed by the individual, a resident company or a non-resident company and therefore options should be explored.
Investment in residential property considerations differ greatly from that of an investment in commercial property. From example the annual tax on enveloped dwellings ‘ATED’ does not apply to commercial property investments.
Due to the various aspects of the taxes involved when investing in a UK commercial property professional tax advice should always be taken before proceeding.
If you would like to know more about offshore company structuring and the various issues involved when purchasing property in the UK, then please do not hesitate to contact us.