Structuring purchase of UK property to reduce tax for non dom/non resident

Question:

Dear WealthProtectionReport,

I am a non-resident non-dom currently based in Hong Kong. Originally from the UK but having lived in Hong Kong for the last 18 years - full-time job in HK, married to a local HK Chinese and owning property in HK.

Recently we bought a property in the UK as an investment to let out. This was bought in joint names with an off-shore mortgage.

We are now considering buying a plot of land in the UK to build 2 houses which when complete we can either rent out or sell. The land will be bought without any mortgage and the subsequent building costs can also be financed by us without resorting to any loans.

My questions are as follows:

1. What would be the most tax advantageous way of buying the land - individual names or set-up a company (if a company should this be offshore ie a Hong Kong company or local UK company ?) what would the tax implications be ?

2. Should we arrange a mortgage for the financing of the construction or pay for this ourselves ?

3. From a tax consideration would it be better to let the properties when completed or sell outright ? We can hold the properties for a few years if need be before selling.

Many thanks for your advice.

Answer:

There are a lot of issues to consider here.

In terms of capital gains tax whether you purchase in your own names or use an offshore/non resident company you would be exempt from capital gains tax.

If you were to develop and sell immediately the risk is that you would be classed as a property trader. This would then bring you within the remit of income tax, which would be charged irrespective of you/your companies non resident status. Therefore as a general rule, development followed by a period of letting would be the preferred option in tax terms. This would then allow you to demonstrate an investment motive.

In terms of income tax, whether you use an offshore company or invest personally there would be a UK tax charge on the rental income. Using finance to purchase/develop the properties would be advantageous in tax terms as you could then offset the interest against the rental profits to reduce/eliminate any UK income tax charge. If you used an offshore company to purchase the land etc you could potentially look to establish a financing structure (eg providing loans yourself via associated company) to reduce UK rental profits.

In terms of inheritance tax, using an offshore/non resident company would be beneficial as this would take the UK properties outside of your estate for IHT purposes.

About the Author

He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.

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