The government has proposed that from April 2017, foreign companies and other non-UK vehicles holding UK residential property will be regarded as transparent for inheritance tax purposes, regardless of the domicile status of the underlying beneficial owner or settlor. The government has not yet consulted or legislated on the proposed changes. However, individuals and trustees with residential property holdings who are concerned about the changes may wish to consider restructuring options well in advance of the anticipated April 2017 deadline in order to avoid rushing important decisions and to anticipate potentially lengthy liquidations.


For many years, it was possible for non-UK domiciled individuals – particularly those who were also non-UK residents – to buy and hold residential property in the United Kingdom with relatively few tax costs, provided that they planned and structured such a purchase carefully, ideally before buying a property.

Tax changes

However, the UK tax landscape has changed radically in recent years, with the introduction in 2012, 2013 and 2015 respectively of higher-rate stamp duty land tax at 15%, the annual tax on enveloped dwellings (ATED) and its relative, ATED-related capital gains tax capital gains tax, and non­-resident capital gains tax for disposals of residential property not already caught by ATED-related capital gains tax.

Most recently, on April 1 2016 the government introduced a 3% higher rate of stamp duty land tax for acquisitions of certain interests in additional dwellings (or first and subsequent dwellings acquired by companies and trustees, in certain circumstances).

With these changes, and the proposed changes to inheritance tax, many residential property owners are reconsidering the benefits of holding property through an offshore structure and considering alternatives, including holding such property directly – either by an individual or in a trust without a company.

Proposed disclosure of beneficial ownership

Another recent government proposal – that foreign companies be required to disclose their beneficial ownership before they are allowed to buy land and property in England and Wales – is likely to add further to the factors weighing against such structures, potentially removing one of the main non-tax advantages of indirect property ownership: privacy.

Taxation of UK property

In general, there are three main categories of direct UK tax that are relevant in the context of ownership of UK residential property:

  • income tax on any rental income from the property;
  • capital gains tax – whether ATED-related capital gains tax (for properties within the charge to ATED discussed below), non-resident capital gains tax (for properties held by non-UK residents other than those subject to a relief or exemption) or otherwise – on a disposal of property at a gain; and
  • inheritance tax on transfers of value on death or, in specified circumstances, during an individual's lifetime or during the lifetime of a trust.

In terms of indirect taxes, it may be relevant that stamp duty land tax is payable by purchasers of UK residential property at rates which vary between 0% and 12% according to the value of the property.

With effect from April 1 2016, a higher stamp duty land tax rate of 3% may be added to the existing rates of stamp duty land tax on a purchase of a major interest in a dwelling for more than £40,000. It is paid by individuals who acquire a second or subsequent residential property, unless a main residence is being replaced (or some other exemption applies), and by companies on any dwelling over £40,000 within the rules, not just an additional property. Trustees and partnerships are also liable to the higher stamp duty land tax rates in specified circumstances.

Companies and certain other non-natural persons may be subject to higher-rate stamp duty land tax at 15% on an acquisition of residential property valued over £500,000 ('higher-value' property); if this is the case, they will not also be liable to the additional 3% rate.

No stamp duty land tax is payable on gifts of UK property, unless the gift is to a connected company or on the transfer of shares in a company deriving its value from UK property (although in the case of a transfer of shares in a UK company, stamp duty at a rate of 0.5% may be payable).

For residential properties valued over £500,000 (as of April 1 2012 or the date of acquisition, if later) and owned through a non-natural person, ATED may also be relevant. This charge is payable annually for the period between April 1 and the following March 31, unless an applicable relief is available (eg, for property rental businesses).

Options for acquiring and structuring UK property

The principal (but not only) structuring options available for wealthy non-UK resident or non-UK domiciled individuals acquiring UK property are:

  • direct ownership by an individual;
  • ownership through a single-purpose, foreign-registered holding company, the shares of which are owned by an individual or individuals;
  • ownership through a foreign-registered holding company, the shares of which are owned by non-UK resident trustees of a discretionary trust created by a non-UK resident and non-UK domiciled individual or individuals; and
  • direct ownership by non-UK resident trustees of a discretionary trust (as above).

The form of ownership that will suit each individual investor will vary not only according to his or her personal tax circumstances, but also – and often more importantly – according to other factors, such as privacy of ownership, the avoidance of probate and any applicable forced heirship rules (eg, those of Sharia law or of many European and other civil law countries).

Restructuring options

After consideration of all relevant issues, owners of UK residential property who already hold such property through an offshore structure – whether a company, by trustees directly or a company held within a trust – may decide to restructure their property, possibly even collapsing the holding structure entirely to hold the underlying property directly. Doing so may have the added benefit of removing some or all of the ongoing costs involved in the administration and management of a company or trust.

While there are a number of alternatives, in many cases this will involve either a transfer of shares to trustees or individual shareholders, followed by the liquidation of an offshore company, or liquidation of the company resulting in transfer to the shareholders of the property itself. In some cases the underlying property may also be transferred from trustees to an individual beneficiary.

Tax considerations

The following UK tax issues are also likely to arise on any restructuring:

  • Stamp duty land tax – if there is borrowing within the structure, there may be stamp duty land tax issues to consider when the property is transferred to shareholders. In certain circumstances it may be possible to manage this by discharging any such debt.
  • Capital gains tax – there may be a capital gains tax charge, including ATED-related capital gains tax and/or non-resident capital gains tax, on a disposal or deemed disposal of the property if the property has increased in value since acquisition, or since 2013 or 2015, as relevant (depending on which type of capital gains tax applies).
  • Inheritance tax – if the UK property is held by the trustees directly, an inheritance tax charge of up to 6% of the value of the property may arise on transfer to an individual beneficiary.

Timing considerations

Timing will be an issue where liquidation of a company is involved and, depending on the jurisdiction in which the company is registered, this may take several weeks or even months. Therefore, where there may be a deadline for restructuring to occur – possibly April 6 2017 in many cases – timing will have to be carefully considered.

Where possible, in light of the inheritance tax and disclosure measures that are being considered at the moment, ideally no final decisions should be taken until the proposals are clear. For example, transitional measures may be put in place to mitigate some or all of the tax charges that might otherwise arise if a complex structure is collapsed.

Such provisions may not be available retrospectively if restructuring is carried out too soon. However, there is considerable merit in considering these issues now and preparing a step plan for how to deal with them if their implementation is as expected, in view of the likely time pressure in the run-up to April 6 2017.


While the recent and planned legislative changes may appear negative, they do also present a number of opportunities. For example, the need to consider restructuring provides an opportunity to review an existing structure for succession planning purposes. If a structure is being wound up or altered, what will replace it? Companies holding residential property and traditional trust or company structures may be dissolved in favour of more suitable and modern arrangements or family governance structures.

However, investors may wish to consider retaining a trust in which trustees hold a UK residential property directly, given that this structure offers a number of non-tax benefits that may offset the tax costs involved. These include estate planning advantages and ease of administration, as well as protection against the requirements of Sharia law and other civil law forms of forced heirship.

Alternatively, individuals may consider balancing their portfolio with UK commercial property or other assets. This would allow them to preserve their existing structures while retaining tax benefits no longer available with residential property.

It is hoped that the position will become clearer over the next few months in order to give time for decisions to be made and restructuring to be undertaken where necessary before the proposed inheritance tax measures are introduced, due to take effect from April 6 2017. In the meantime, it is important to begin analysing possible options for acquisition or restructuring of UK residential property as soon as possible in order to act swiftly, if necessary.

For further information on this topic please contact Catharine Bell, Nick Jacob, Anthony Thompson or Daniel Ugur at Gowling WLG by telephone (+44 370 903 1000) or email (,, or The Gowling WLG website can be accessed at

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