UK Property Company for South African Individuals

Inheritance Tax (IHT)

Under Schedule A1 of the Inheritance Tax Act 1984, shares in a company that owns UK residential property are not treated as excluded property. As a result, they remain within the scope of UK inheritance tax. The portion of the company’s shares that reflects the value of the UK residential property will be chargeable to IHT.

The parents’ shareholding can be reduced by transferring shares to their children; however, appropriate planning for IHT—and potentially other taxes—will be required.

Stamp Duty Land Tax (SDLT)

SDLT is higher for non-residents due to a 2% non-resident surcharge. A 5% surcharge also applies to:

• Additional properties held by individuals (i.e. if you own more than one property worldwide), and
• All properties held in a company.

Even if UK-incorporated, a company is deemed non-resident for SDLT purposes if it is a close company controlled by non-residents.

SDLT Rates for UK non-resident companies or individuals purchasing an additional property:

Advantages of Using a Limited Company

• Lower rates of tax on income and gains (19% vs 20% basic / 40% higher / 45% additional rates for individuals).
• Full relief for interest (generally available).
• Limited liability.
• Easier estate and family succession planning – shares in a company can be more easily transferred than fractional property interests.
• Enhanced credibility – perceived as more established by lenders, investors, and partners.
• Company year-end can be aligned with the South African tax year, avoiding adjustments in the SA tax return.

Disadvantages of Using a Limited Company

• There may be a higher total tax liability in the UK when profits are extracted from the company.
• No personal allowance – individuals benefit from tax-free allowances.
• Additional administrative burden and accounting fees.
• ATED may apply where residential property values exceed £500,000.
• Possible mortgage restrictions – fewer lenders and higher rates for company buy-to-let mortgages.
• Winding up a company can be more complex and costly than ending a personal business.
• Annual accounts filing – less privacy, as financials are publicly accessible via Companies House.
• The company will be subject to UK corporation tax on its UK property business profits; however, a tax credit can be claimed for this in the individual’s South African tax return.
• Controlled Foreign Company (CFC) rules apply if the company is controlled by South African individuals. Profits in the UK company are taxable in South Africa when earned, not when extracted, so:
  • Retaining profits in the company does not defer the individual’s personal tax liability (in South Africa), and
  • Flexibility in how profits are extracted (dividends, salary, loans) is irrelevant from a South African tax perspective.

Summary

• There is no immediate Inheritance Tax (IHT) advantage to using a company structure—planning is required.
• SDLT costs are the same whether the property is held personally or through a company.
• While full interest relief can make UK tax lower in a company, the benefit of personal allowances for individuals should also be considered. South African tax credits apply regardless of whether tax is paid personally or through a company.
• A company can offer easier succession planning and aligned tax years but also brings additional administrative burdens and fees.
• The total tax paid across the UK and South Africa should be broadly the same, regardless of whether the property is held personally or through a company.

While every care and attention has been taken to ensure the accuracy of the information contained in this publication, it has been prepared in general terms and does not constitute advice. It should only be regarded as general guidelines. The information may change over time and is not a substitute for professional advice. Users are encouraged to verify the information independently or consult one of our qualified professionals at EOACC LTD for specific guidance. Any liabilities or losses arising, or enquiries raised by HM Revenue and Customs or any other parties, due to the taking or refraining of actions referred to in this publication are not the responsibility of EOACC LTD.