Flying under the radar: how to buy UK real estate incognito

The UK legal system provides far more opportunities to buy residential real estate on a confidential basis than continental Europe where the tax authorities prevent conduit purchases, through a trust fund for instance.

Tightening the screws on buyer confidentiality

Changes to the UK tax system in 2013, however, forced many beneficiaries holding property worth over £1M to reveal their previously undisclosed identity linked to offshore structures. British Prime Minister David Cameron keeps calling for tighter regulations on foreign investors and promised in the summer of 2015 to establish a public land registry destined to record foreign legal entities rich in British property as part of his anti-money laundering campaign. Mr Cameron also proposes also an expanded register with data on British and foreign entity beneficiaries.

Transparent confidentiality

In light of these changes, investors intending to buy real estate in the UK on a no-name basis should have totally transparent holding structures for their property. The best way to do this is to incorporate a nominee entity in the UK or abroad in order to protect the beneficiary’s name from disclosure to the Land Registry. The nominee entity will also protect the owner from competitor enquiries and idle curiosity of the public. However, tax authorities in the investor's home country and in the UK will have full information regarding the nominee entity and beneficiary of the company.

How to create a nominee entity

1. Incorporate and register a nominee entity. It is better to get the support of experienced British legal advisors to execute this and find the nominee holder and secretary.
2. Appoint a nominee director and sign a declaration empowering them to act on behalf of the beneficiary.
3. Sign a release form to remove any liability from the nominal director for any legal breaches committed by the beneficial owner.
4. The nominal director issues power of attorney to the beneficial owner (or legal representative), authorising them to conclude purchases and sales, property management services, open bank accounts, etc.
5. Buy the desired property with an agreement in the company’s name.

Finalising the property purchase

British legal advisors conduct due diligence and identify the source of income before accepting clients. Beneficiaries should be ready to produce reference letters from financial advisors, business partners or anyone else who can confirm their reputation. The nominee holding structure is subject to two property taxes: inheritance tax and stamp duty land tax (SDLT). Stamp duty rules changed last year under Chancellor George Osborne. Nowadays, stamp duty on prime residential property is 5% for any purchase from £575,000 to £925,000, 10% up to £1.5M and 12% on everything above that. There are separate and more favourable rates for non-residential property purchases. There are also multiple forms of tax relief, making it worthwhile to use expert services to file the SDLT return.

Yulia Kozhevnikova, Tranio