Proyecto gamificado para la unidad didáctica

Clearly a non-UK resident who is considering a purchase of property in the UK will need to decide how that property should be held. Whilst each particular ownership structure will depend upon the precise circumstances of the non-UK resident investor, some general comments are set out below. Where a property is to be held as an investment, it should normally be held by a non-UK resident person or company, who does not carry on a business in the UK, so that a liability to UK capital gains tax on any gain on the disposal of the property does not arise. Holding through a non-UK resident company or vehicle is likely to be preferable to holding personally as a liability to UK inheritance tax could arise on the death of the individual or the transfer of the property by him at an undervalue.

If an investor does decide to use a UK company as the owning vehicle, it is generally preferable for all property held as trading stock to be held by a single UK company, rather than in separate companies, so that all property dealings constitute a single trade. This will make it more likely that the company will be able to set off losses (if any) arising from one property against profits arising from another. Although tax losses can be transferred within a group of UK resident companies, the provisions permitting this are more restrictive than where losses and profits arise within a single company. There is also the question whether trading in property should be carried out in the UK through a permanent establishment or branch (of a foreign investor) or a subsidiary. This will have commercial and legal, as well as taxation, implications.

If a non-UK investor wishes to spread the risk of investing in property in England by arranging a joint venture with a non-UK resident or a UK resident, there is the question of how the joint investment should be made. If the participation is to be through a partnership, the non-UK resident’s share of the partnership profits will effectively be treated as profits of a UK branch of the non-resident. If, alternatively, two investors form a joint venture company, the position will be similar to that of a foreign company forming a subsidiary.

The above paragraphs only consider the tax implications of investing in UK commercial property. There are different tax implications for investment in UK residential property particularly where the property is worth more than £500,000.

Glossary

Most of these commonly used terms are explained in the text but it may be helpful to also refer to them here:

Assign or assignment

To transfer. Commonly used to refer to the transfer of a lease, but can also refer to the transfer of the benefit of rights and warranties.

Completion

The occasion on which the sale, purchase or lease of an interest in land is completed, usually occurring when the price is paid and ownership of the property is transferred or the lease is granted.

Freehold

Land which is owned outright and forever.

Investment lease

A lease which has an investment value because of the long period (usually originally 125 or more years) and the fact that there is no rent, or only a minimal rent.

Land

Land includes any buildings on it. English law does not recognise the concept of buildings being owned separately from the land on which they stand. Buildings always belong to the owner of the land, even if someone else has paid for their construction, but subject to any rights of occupation that a tenant may have.

Land Registration

The system of registering the ownership of land.

Landlord (or Lessor)

The person who grants a lease and permits another to occupy his land or building.

Lease

The agreement under which ownership of land is given to a tenant for a limited period of time, usually in return for an annual rent or a premium. A lease confers on the tenant the right to exclusive possession of the property.

Leasehold

Land which is owned on the terms of a lease for a limited period of time; this period may vary from a day to 1,000 years or more.

Mortgage

A charge over property to secure the repayment of a sum of money or the performance of other obligations.

Mortgagee

A bank or other lender to whom land is mortgaged.

Occupational lease

A lease granted to an occupying tenant at a full market rent, normally for somewhere between 5 and 25 years for its own occupation.

Rent review

The provision in a lease for the rent to be reviewed to the open market rent at the date of the review. It is customary for the amount of rent payable by a tenant under an institutional lease to be reviewed periodically (usually every five years). Rents are usually reviewed upwards only, that is, if the open market rent has increased, the rent under the lease will be increased to the open market level but if it has decreased, the rent payable under the lease will stay the same.

SDLT

Stamp duty land tax, which is a transaction tax on property.

Tenant (or Lessee)

The person permitted to occupy the land or building of another under the terms of a lease.

VAT

Contacts

London