Does an offshore or overseas company pay SDLT (stamp duty land tax) on a distribution in specie of UK residential property? Many owners of...
How to De-Envelope or transfer UK residential property out of an overseas company
The tax benefits of ownership of property by onshore or offshore residents through
an overseas company have not only been removed but such companies are now more
Overseas companies must also now register at the UK Companies House as an
overseas entity disclosing information on a public register about beneficial owners or
managing officers. These rules also apply where the beneficial owner is a trustee of a
Now that companies are caught by tax rules relating to ATED (Annual Tax on
Enveloped Dwellings) which affects properties valued at as little as £500,000,
Corporation Tax currently at the rate of 25% and potentially Inheritance Tax, most
owners of offshore companies will wish to transfer their property out of the company
structure, usually into individual names or a trust. This can offer an opportunity for
some inheritance tax planning usually by making a lifetime transfer of the property
to family members.
The good news is that SDLT (stamp duty land tax) will be exempt in most cases
provided that the correct procedures are followed.
It is advisable to take tax advice on the range of potential taxes that can arise from
de-enveloping a property.
HOW TO DE-ENVELOPE
There are usually two ways of proceeding:
1. Pass a company resolution and transfer the property to the shareholders or their nominees by way of a distribution in specie (in kind). This will be exempt from stamp duty land tax (SDLT) provided that it is a voluntary transfer for no ‘chargeable consideration’.
2. Pass a resolution to put the company into voluntary liquidation and carry out a distribution in specie.
The second way will be the more costly since there will be the costs of the liquidator to take into account.
The articles of association must be checked to ensure that a distribution in specie is permitted. If not, the articles can be amended by passing a special resolution. The resolution must be carefully worded if exemption from SDLT is to be claimed. It should not be worded as a cash value dividend equal to the market value of the property to be settled by a transfer of assets.
In order to avoid having to pay SDLT, there should be no third party debt or mortgages over the property. The directors will need to check that the company has sufficient assets to make the distribution and there are no outstanding creditors other than any debt that may be owed to the shareholders themselves.
For overseas companies, a legal opinion may be required from lawyers practising in the jurisdiction as to the legality of the actions being taken in order to satisfy the requirements of the Land Registry.
Our expert solicitors will be pleased to advise and guide you through your transaction. Please contact Alan Zeffertt if you would like assistance:
T: 020 7043 1621
M: 07968 190951
Disclaimer: The information in this article is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.