New public register of beneficial ownership is a potential threat to privacy and security, says John Goodchild.
On 12 May the Prime Minister, David Cameron, announced that foreign companies that own property in the UK will be required to disclose in a new public register of beneficial ownership, information showing ‘who really owns them’. Importantly, this will apply to companies that already own land in the UK.
We await further detail as to how this new public register will operate and the information that will be disclosed. However, if the new register is anything similar to the register of people with significant control that already relates to UK limited companies, it would contain the beneficial owners’ full names, dates of birth, nationality, country or state of residence and residential address.
This latest development is a manifestation of the suspicion attaching to the ownership of assets by offshore companies. However, does it really impact upon high net worth individuals and families who already own or wish to own residential property in the UK?
New entrants into the world of UK residential property are now unlikely to own that property through an offshore company. Whilst this was once the norm, the erosion of tax benefits and the incremental imposition of tax penalties should dissuade anyone from directly or indirectly owning UK residential property through an offshore company.
The tax factors that should convince individuals or families not to use an offshore company are:-
- The loss of offshore companies as a shield against inheritance tax (‘IHT’) when new ‘look through’ legislation takes effect on 6 April 2017.
- Potentially penal rates of stamp duty land tax (‘SDLT’). If a company acquires a residential property and it cannot be demonstrated that the property is to be exploited in a ‘property letting business’ or that another exemption applies SDLT at the rate of 15% is chargeable on the entire purchase consideration.
- Similarly, if a residential property cannot be shown to be exempt on similar grounds the annual tax on enveloped dwellings (‘ATED’) is charged. This starts at £3,500 per annum (for properties worth more than £500,000) and rises to £218,200 (on properties worth more than £20 million).
- There is also scope for double charges to tax on capital gains where a corporate is involved, particularly as any offshore company is itself chargeable to capital gains tax on gains relating to residential property.
- If family members occupy the property and they are or become UK tax resident there is a risk of a tax charge under the employment ‘benefits in kind’ regime if they can be shown to be ‘shadow directors’.
The position of individuals and families who already own UK residential property through a structure which includes an offshore company has deteriorated in recent years. ATED, which originally only applied to properties worth more than £2 million, has gradually been extended and now probably applies to any property that they own in London. Furthermore, they are aware that on 6 April 2017 they will be deprived of their offshore corporate shield against IHT, which was probably the driving force behind the structure in the first instance.
These individuals and families are probably in a quandary at present as to how to react to the loss of IHT protection and the other proposed changes to the taxation of non-domiciled individuals that were announced in the Summer 2015 Budget. Most individuals and families are waiting for further announcements from the Government since the possibility of some form of transitional relief for those who dismantle their structures was mentioned in the press releases at the time.
Subject to any transitional relief that might be announced, dismantling a structure may have adverse tax consequences for the individual and family concerned and, so, depending upon family circumstances one option is to leave the structure in place. A factor that might have persuaded a family to follow that course would potentially be the anonymity, and consequent protection, provided by the offshore company.
That anonymity factor is now placed in jeopardy, although it is difficult at this stage to be clear about the extent of that jeopardy.
What we will need to see is whether the proposed rules relating to the new public register enable individuals and their advisors to apply for details to be suppressed from public disclosure and the grounds upon which such an application may be made.
In summary, the Government announcement on 12 May probably does not make a material difference to individuals and families who own or are looking to own UK residential property, but it will have increased the uncertainty of those who are already in a quandary as to what to do with their existing offshore corporate structures.
John Goodchild is a partner at Pemberton Greenish LLP