Tax implications of closing an overseas entity?

Transferring assets from overseas entity to UK associated company

Didn't find your answer?

My client has inherited the family company, which is a bit of a mess. It was registered abroad in the 1970's and we added to the CH overseas entity register in 2023. The company owns UK residential rental properties, it has no other assets and no cash (my client has loaned the company the funds required to cover fees etc so far). My client wants to close down the overseas company and just have everything in the UK. The overseas entity has not yet submitted any UK accounts or tax returns (though these will be due by the end of the 2024, albeit loss making due to high costs and non-paying tenants). If my client sets up a new UK company, what's the best way to transfer the properties from the overseas company to the UK one? Each company would be 100% owned by my client, so they'll be associated but not grouped. Can we transfer at NGNL? What about SDLT? What if my client wanted to transfer the properties to her own name instead of a new company, i.e. disincorporate the UK assets held by the overseas entity? Anything else I need to take into consideration?

Replies (7)

Please login or register to join the discussion.

avatar
By David Ex
21st May 2024 10:45

If you’re using your real name, you might want to ask the site administrator to change it to something else. Your client might see it.

Thanks (0)
Replying to David Ex:
avatar
By David Ex
21st May 2024 16:19

David Ex wrote:

If you’re using your real name, you might want to ask the site administrator to change it to something else. Your client might see it.

Right. Now that you've done that, can I suggest you speak to your manager and ask for some help with this if it's outside your knowledge and experience. Better to admit you need some support/direction than wing it.

PS You haven't mentioned the potential overseas tax and other regulatory obligations. Maybe there aren't any but it's also outside my knowledge and experience.

Thanks (0)
Replying to David Ex:
avatar
By NLF1
22nd May 2024 09:07

Thanks for your reply.

There are no tax implications in the country where the current company was incorporated.

I have an idea of how it will look but have posted here to see if I'm missing anything or if anyone has suggestions on a better way to do this. Perhaps I hadn't worded my original post very well... If we group the companies, they could transfer at NGNL but would have a degrouping charge if original co leaves the group within 6 years. If grouped they'd also qualify for SDLT group relief on the transfer. However the client would prefer to close down the original co, so querying if there's a way to do this with associated companies rather than grouped.

Thanks (0)
avatar
By Tax Dragon
22nd May 2024 09:09

Why does the client want to change the structure?

Thanks (1)
Replying to Tax Dragon:
avatar
By NLF1
22nd May 2024 09:29

There are a number of reasons, most notably:

The client is looking to bring all of their affairs back to the UK (the individual has been non-resident for 25+ years). They are selling most of their personal assets abroad and investing in / relocating to the UK.

This particular company's only assets are UK residential property, therefore it's subject to the NRL regimen with the onus currently on tenants to withhold tax etc. Yes they could apply to receive rents gross but no guarantees this would be approved and ultimately they'd prefer not to have the overseas entity anyway.

If the company wants to purchase any additional properties they'd be subject to the additional 2% SDLT surcharge.

Potential ATED charges if current or future properties breach the threshold (some current properties are coming close, hence considering disincorporation).

The company also pays a substantial fee in the country of incorporation - at the time of incorporation this was a cost effective option due to the tax benefits of incorporating there. Those tax benefits are long gone but the company continues to incur the annual fees.

Thanks (0)
Replying to NLF1:
avatar
By FactChecker
22nd May 2024 15:25

The (main) reason I hadn't proffered any thoughts was your final original question: "Anything else I need to take into consideration?"

At the best of times (with full disclosure of all pertinent details including client's objectives), an appointed professional will be wary of such a question ... as you're entering the valley of unknown unknowns.
But your expansion of (some of) the background makes even clearer the classic conundrum for any adviser ... things change over time in all so many ways, so it's hard to consider all possible futures (and suicidal if not backed by PII).

You sound to be reasonably knowledgeable, so there's presumably no need for me to point out that timing (and orders of precedence) of any actual actions taken can matter as much as those actions in themselves - which is another reason why any unexplored option can have a major knock-on 'ripple' effect.

Putting it bluntly, you either live with the decisions you make or you appoint/sub-contract someone to provide as full a set of answers as possible - but a public forum is unlikely to generate much useful against such a broad palette.

Thanks (2)
avatar
By taxdigital
23rd May 2024 09:22

Assuming the individual in question is tax resident in the UK, and ignoring all the anti-avoidance legislation surrounding ownership of foreign companies by a UK resident, I would start by looking at two options:

Since there are no tax implications overseas, shut down the foreign company and distribute the property to the UK resident shareholder as 'dividend in specie'. This means obviously you've the income tax position of the individual and SDLT sort out.

Open a new UK company and buy the property from the foreign company. Whilst there are no overseas CGT implications look at s.3 TCGA. Still SDLT will be in point.

Group relief: If there is no tax in the foreign country you will be looking at the group structure just for SDLT avoidance only. I'm not too sure you meet all the conditions for group relief as far as SDLT is concerned (Para 1 &2, Sch 7, FA 2003).

Thanks (1)