[JimmyL]

Up until last summer (when the Government won a case letting them change the law), having your expensive house owned by an offshore corporation was the canonical way to avoid a particular type of UK tax called Stamp Duty.

When you buy a property, you have to pay Stamp Duty [1] on the value it's sold at. Stamp Duty uses marginal tax brackets, and the highest one (for the portion of the transaction over £1.5M), is 12%...so it adds up if you're buying a large house.

Given that the tax rate for buying "shares in a foreign company that has a share register in the UK" is a flat 0.5%, the scheme was that you set up the house as the only asset of an offshore corporation registered in the UK, and instead of selling someone the house, you sell them the shares of the corporation. The buyer can now inhabit the house at their leisure (since they own the company that owns it), but the direct ownership of the house didn't change - so no Stamp Duty was triggered.

There are likely other tax benefits to having your expensive house owned by a numbered corporation, but Stamp Duty is/was a significant one.

[1] https://www.gov.uk/stamp-duty-land-tax/overview

[charlesdm]

Even with the new taxes, people were/are still purchasing through foreign companies (that way, you avoid the 0.5% stamp duty when the shares are sold?).

They do have to pay the Annual Tax on Enveloped Dwellings (ATED) then though, which is basically an annual tax that needs to be paid when a corporate entity (i.e not a person or a trust) owns a property.

[JimmyL]

Very true, but ATED is cheap.

On a (for example) £7M house you would have paid £750K Stamp Duty, or if sold though a corporate transfer, £35K of tax on the shares and £36K/yr ATED - so holding it for less than twenty years would have been a deal, assuming no other possible savings from the corporate option.

[charlesdm]

Probably, yeah.

Even though this law should dissuade people from buying through corporate vehicles, all the existing housing stock (i.e. probably nearly all the property in Kensington & Chelsea, Knightsbridge, Belgravia, etc that is from the 1700-1900s) that is worth holding through SPVs is already held through SPVs, and will not be captured by this change.

Developers usually split up their new buildings in separate entities before they build anything, because I believe only stamp duty is payable on the land then. Instead of then selling the property, they sell the shares, which is taxed as capital gains (instead of corporate income) for them. Good times in the luxury market, since share sales in corporate vehicles tend to be tax free.

It's still very much a win-win situation for both seller and buyer (probably much less for new developments after this change), so no reason not to do it. I don't think this will raise significant amounts of tax any time soon. :)