Real Estate Investor Magazine South Africa Real Estate Investor Magazine - Dec/Jan 2018 | Page 25

SDLT is payable by the LLP itself at the same rates as for in-
dividuals.
IT
Individual members taxed at rates per Table B. Corporate mem-
bers taxed as per UK and offshore companies’ sections below.
ATED
Where all the members are individuals, no ATED payable.
Where the LLP has at least one corporate member, ATED is
payable. ATED is an annual lump sum tax paid by corporate
owners of residential property worth more than £500,000. The
relevant property value bands and tax payable for each band is as
set out on Table C. Exemptions exist in certain cases, the most
common of which is where the property is let to unconnected
persons (so not let to close family members). Exemptions also
apply for property development or property trading.
Offshore Companies
SDLT
As per UK companies.
IT
Offshore companies are subject to IT on their net rental profits
per Table B.
ATED
As per UK companies.
CGT
As per corporate members of LLP’s above.
IHT
Offshore companies with UK residential properties are see-
through for IHT purposes. So, where an individual sharehold-
er dies, the property owned by the offshore company will fall
within the individual’s UK estate and will be subject to IHT
per the rules under individuals above. Where the shareholder
is a trust, see below under trusts for a different set of IHT rules.
Offshore Trusts
SDLT
As per individuals.
IT
Trusts are taxed on their net rental profits at a special trust rate
of 45%.
ATED
Trusts are not subject to ATED.
CGT
Offshore trusts are subject to CGT at a rate of 20%. There is no
uplift applied to the cost in respect of inflation.
CGT
Payable by individual members as per the individual section.
Payable by UK company members at 19% (under Corporation
Tax rules) and by offshore company members at 20% where
ATED doesn’t apply, and 28% for both where ATED does ap-
ply. Corporates may uplift the cost of the property by inflation
rate movements over the period of ownership, thereby reducing
the gain subject to CGT.
IHT
See section on individuals above and on UK and offshore com-
panies below for IHT treatment.
Companies
This section is divided into 2 parts:
UK companies
Offshore companies
UK Companies
SDLT
Where the property falls under ATED, 15%. Otherwise per
Table A.
IT
UK companies are not subject to IT but rather to Corporation
Tax at 19% on their net rental profits.
ATED
Where the property is worth more than £500,000 and does
not fall within one of the exemptions, then ATED is payable
per Table C below.
CGT
As per corporate members of LLP’s above.
IHT
The value of the company’s shares will be included in the de-
ceased’s estate and then subject to IHT as for individuals above.
IHT
Trusts are subject to an IHT regime different to that applica-
ble to individuals. The IHT charge is 6% payable on the 10th
anniversary of the date of formation of the trust (not the date
that the property was acquired) and every 10 years thereafter.
There is also a proportionate exit charge where the property
is transferred out of the trust before the next 10-year period
ends. The 6% rate is applied to all the trust’s net UK assets, so
any mortgage attaching to the property is deducted from the
value of the UK assets before computing the 6% charge. Trusts
also benefit from the £325,000 exempt band.
Conclusions
• The tried and tested structure for owning UK residential
property was for many years to own in an offshore compa-
ny, itself owned by a trust. In most instances, this will no
longer be tax-efficient.
• As can be seen above, all the ways of owning bear similar
taxes in many respects.
• Generally, where the property is valued at more than
£500,000, it will be tax-inefficient to hold it in a company
unless let to non-connected parties. For such properties
valued at say £2m or more, the ATED charge is heavy.
• However, corporate ownership can be beneficial where the
rental profits are high (something in excess of £45,000), as
these will generally be subject to lower tax.
• Trusts benefit from lower IHT but suffer higher tax on
rental profits. They also afford ease of succession.
• For simplicity, owning in an individual’s own name, or
jointly as a married couple or civil partnership, is best.
These two methods do not incur taxes vastly different to
the others and avoid the costs associated with running
trusts, companies and LLP’s.
• The non-tax reasons for structuring property ownership
should not be overlooked.
SA Real Estate Investor Magazine DECEMBER 2017/JANUARY 2018
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