Property ownership - Offshore and onshore
There is a general presumption that property owned offshore can facilitate a low tax regime. However, UK tax legislation has “anti-avoidance legislation” which hypothetically traces the income and gain to the ultimate owner.
Although offshore ownership puts the beneficial owner in the same position as a UK taxpayer there are some benefits:
- Less disclosure by not having published accounts if operating through a company
- Overseas partners can bring in expertise and funding through an offshore company and this may restrict their exposure to UK taxes
HMRC are party to an agreement known as the Common Reporting Standard to which more than 100 countries have signed up to. This protocol results in beneficial ownership of foreign accounts that may hold rental income or development gains allowing these to be revealed to HMRC.
For a UK tax resident holding property in an offshore company, the income arising is taxable on the individual. The same applies for capital gains. In addition to this, since April 2017, for both residents and non-residents, IHT on residential property held in offshore companies is now related back to the estate of the individual.
The Finance Act 2017 introduced the Required to Correct (RTC) whereupon tax payers are requested to review their tax affairs and ensure income and gains recorded through offshore companies/trusts have been properly reported. Full disclosure to HMRC is due by 30 September 2018, failure to disclose is likely to lead to severe penalties. HMRC have also extended the time limits for non-disclosure.
- Deliberate understatement - 20 year time limit is 24 years
- Careless behaviour - 6 year time limit is 10 years
Clearly, the UK Government want to encourage UK investment through UK individuals and companies. The proposed corporation tax rate of 17% from 2020 is attractive. However, with potential penalties of 200% of the undisclosed tax (and potentially more in certain circumstances) reviewing one’s position has merit.