Property holding structures—direct tax treatment of UK company
Produced in partnership with Charles Goddard of Rosetta Tax
Property holding structures—direct tax treatment of UK company

The following Tax guidance note Produced in partnership with Charles Goddard of Rosetta Tax provides comprehensive and up to date legal information covering:

  • Property holding structures—direct tax treatment of UK company
  • Charge to corporation tax
  • Trading vs investment
  • Trading—corporation tax treatment
  • Investment—basic corporation tax treatment
  • Investment—short lease premiums
  • Investment—anti-avoidance
  • Investment—corporation tax on chargeable gains
  • A UK company as a real estate investment trust (REIT)
  • Annual tax on enveloped dwellings (ATED)

Although a buyer may have reasons to hold commercial and, sometimes, residential property, via an offshore holding structure, the most common vehicle for investment in UK real estate tends to be the UK limited company.

A key exception to this is in relation to dwellings (held for private purposes), for which a UK company is unlikely to be a tax efficient holding structure. This follows the introduction in April 2013 of the annual tax on enveloped dwellings (ATED) and related provisions, the purpose of which was to discourage 'enveloping' such properties in companies (or other non-natural entities) to avoid stamp duty land tax (SDLT) on subsequent sales. Although the ATED regime initially applied to dwellings worth more than £2m, it now applies to dwellings worth more than £500,000 (from April 2016), in each case subject to various reliefs. For further details, see Practice Note: ATED—the basics.

This Practice Note summarises the direct tax (ie corporation tax) treatment of a UK incorporated and tax-resident company (referred to in this Practice Note as a UK company) investing or dealing in UK land.

The main advantages of a UK company are:

  1. simplicity—well understood, easy to set up and run, and UK-based

  2. no withholding tax on dividends paid to shareholders

  3. no tax for existing shareholders when new shareholders introduced

  4. no SDLT on transfer of shares (only SDLT on