In light of the recent changes to the tax treatment of high value residential property in the United Kingdom held by any company (see below), it is worth highlighting for investors in the booming UK property market the continued benefits of holding UK property through a British Virgin Islands ("BVI") company.
Perhaps the most significant reason that non-domiciled investors have for a long time preferred to acquire and hold property through a BVI company is that, as long as the ultimate owner remains non-domiciled (and non deemed domiciled) in the UK, the shares are treated as a non UK asset and the property is therefore not subject to inheritance tax on the death of the owner of the shares. Inheritance tax would, after the nil rate band (currently £325,000) and allowances where applicable, otherwise be charged at 40% on the whole value of the property. For owners who are, or become, UK domiciled (or deemed UK domiciled), inheritance tax is payable on all their worldwide assets, (including in our example above, the shares).
Another significant reason is that ownership remains confidential. An alternative to holding through a company is to hold property through a nominee to protect the confidentiality of beneficial ownership. The BVI company's registered agent in BVI is required to conduct a robust level of 'know your client' ("KYC") due diligence, but the register of members of the company and, in the ordinary course, the KYC due diligence remains confidential under BVI law. It is not publicly filed or publicly available to the investor's family, dependents, potential legatees or business rivals.
When a property is mortgaged, BVI holding companies are familiar to lenders, meaning that the ease of taking and registering security and obtaining priority over subsequent creditors ensures the process of financing a BVI company is cost effective and predictable.
The changes that were announced in the UK Budget 2014 do not affect the above benefits. In addition, for investors looking to acquire, or retain, UK commercial property, or UK residential property exclusively for genuine commercial purposes such as letting and development, the regime still won’t apply.
The changes announced were as follows:
- Stamp Duty Land Tax (SDLT) is now payable at 15% on the acquisition of residential property over £500,000 using a 'non-natural person' (including a company).
- There will be two bands for the annual charge (Annual Tax on Enveloped Dwellings or "ATED"):
- for dwellings valued between £1m and £2m, ATED will be payable from 1 April 2015, with a starting rate of £7,000 a year;
- for dwellings valued between £500,000 and £1m, ATED will be payable from 1 April 2016, with a starting rate of £3,500 a year.
- Capital Gains Tax (CGT) is now payable at 28% on the sale of residential properties subject to the ATED.