Al-Wuqayan to 'Al-Siyasa': Changes in the British Tax System Reshape Non-Resident Property Ownership

He confirmed that external structures used for investment purposes, succession planning, or asset holding no longer achieve their intended objectives.

Non-residents are subject to tax on profits derived from real estate and shares in companies that derive 75% of their value from land, provided the seller holds a 25% stake.

A gift can be treated as a "potentially exempt transfer" and becomes fully exempt from inheritance tax if the donor survives for seven years after making it.

The Finance Act 2017 abolished the option to treat shares in foreign companies owning residential property as foreign assets outside the scope of inheritance tax.

Holding property through a trust and a company has become a high-cost structure, as it falls under the "relevant property" regime and incurs a periodic 6% charge.

Real estate expert and lawyer Hamad Al-Waqian confirmed that developments in the tax system and regulatory environment in the United Kingdom over recent years have reshaped the mechanisms by which non-resident investors hold British residential property. He noted that many external structures previously used for investment, succession planning, or asset holding no longer necessarily provide the benefits for which they were established.

Al-Waqian explained, in a statement to "Al-Siyasa," that the most significant change began in April 2017, when the Finance (No. 2) Act 2017 removed the advantage that allowed shares in foreign companies owning British residential property to be treated as foreign assets outside the scope of inheritance tax. Consequently, these shares, when their value is derived from UK residential property, are treated as UK assets and fall within the scope of inheritance tax.

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He added that the landscape underwent further transformation as of April 6, 2025, with the inheritance tax system shifting from the concept of "domicile" to "residence." For long-term non-residents in the UK, assets located in the UK generally remain within the scope of the tax, including residential property held through companies. This means that external structures no longer offer the previous protection from inheritance tax, while costs such as the Annual Tax on Enveloped Dwellings (ATED) and fees for managing companies and trusts continue.

He pointed out that ownership restructuring primarily depends on how the owner holds the property, clarifying that there are two main paths: one where a trust owns a company that holds the UK property, and the second where the company owns the property directly.

Al-Waqian indicated that holding property through a trust and a company has, in many cases, become a high-cost and complex structure. This is particularly true because discretionary trusts and most trusts established after March 22, 2006, are subject to the "relevant property" regime, which may incur a periodic charge of up to 6% on the tenth anniversary, applied to assets exceeding the nil-rate band of £325,000. Additionally, an exit charge of up to 6% may apply when assets leave the trust or upon its closure.

He added that closing the trust might, in some cases, be the first step toward simplifying the structure, particularly when its primary purpose is merely to hold a property. He noted that the timing of this step is important, as exit fees can increase over time since the last anniversary date. Conversely, the tax implications of transferring shares out of the trust must be studied, including capital gains tax and available exemptions, such as those related to spouses.

Regarding the case where the company owns the British property directly, Al-Waqian clarified that the usual course of action would involve liquidating the company, terminating its operational costs, and settling the annual tax associated with covered dwellings, followed by holding the property personally. However, this step places the property within the scope of inheritance tax, prompting some families to consider transferring ownership to children or other family members.

He explained that a gift can be treated as a “potentially exempt transfer” and becomes fully exempt from inheritance tax if the donor survives for seven years after making it. If the donor dies within this period, inheritance tax may be due, although taper relief may be available depending on how long the donor survived after making the gift.

Al-Waqian emphasized the need to note that if the donor continues to use the property without paying full market rent, the gift may be considered a “gift with reservation of benefit,” thereby failing to achieve its intended tax purpose. Additionally, the transfer of the property may be subject to capital gains tax and Land and Buildings Transaction Tax (LBTT) considerations, particularly if there is a mortgage.

He pointed out that the basic inheritance tax nil-rate band is £325,000 per individual, frozen until April 2031. The inheritance tax rate is 40% on the value exceeding this band, with the possibility of transferring any unused portion of the band between spouses upon the first death. Furthermore, annual gifts of up to £3,000 are exempt.

With regard to taxes upon company dissolution, Al-Waqian clarified that capital gains tax represents one of the most significant elements to be calculated in advance, as tax can arise at two levels: first, on the company resulting from the disposal of the property, and second, on the shareholders resulting from the disposal of shares or liquidation proceeds. The company is subject to corporation tax at rates ranging from 19% to 25%, depending on profits, while individuals are subject to capital gains tax at rates of 18% or 24%.

He added that non-residents are generally subject to UK tax on profits arising from British properties, as well as on shares in companies deriving 75% or more of their value from British land, if the seller holds a stake of 25% or more. Rules for recalculating the cost basis also vary depending on the nature of the disposal, with April 5, 2015, applying to direct disposals of residential properties and April 5, 2019, applying to certain indirect disposals.

He noted that Land and Buildings Transaction Tax (LBTT) in England and Northern Ireland is another factor to consider. The basic rates for residential properties reach 12%, with an additional 5% surcharge for additional dwellings and company purchases, and a 2% surcharge for non-residents, which can raise the maximum rate to 19% on the portion of the property value exceeding £1.5 million.

He clarified that transferring a debt-free property from the company to its shareholders generally does not trigger land and buildings stamp duty, whereas such tax may arise if the property is mortgaged and the debt is transferred to the shareholders. Tax regimes also differ in Scotland and Wales, with each applying its own taxes on land transactions.

Al-Waqian concluded his statement by emphasizing that the decision to restructure British property ownership cannot rely on a one-size-fits-all model; rather, it depends on the nature of the current structure, the property’s value and purchase date, the level of financing or mortgage, the owner’s tax residency status, and the tax system in the country of residence.

He stressed that the interaction between inheritance tax, capital gains tax, and land and buildings stamp duty means that any restructuring step requires thorough prior analysis of costs and tax implications. He reaffirmed that obtaining specialized legal and tax advice before executing any transfer or liquidation remains essential to avoid unexpected burdens.