Taylor Wessing - Building Blocks: Structuring European Property Investments

Building Blocks

Structuring European property investments

October 2023

Building

Blocks

Structuring European property investments

This is a guide to the key tax considerations for investors wishing

to invest in property in the European jurisdictions of France,

Germany and the United Kingdom.

It is not comprehensive and is intended as a general guide only.

It should not be relied upon as tax advice in your particular

circumstances.

This guide is based on law and practice as applicable at

1 October 2023, which may in principle change at any time.

Investing in property in France 4

Ownership of French property 6

Property funds 6

Tax on acquiring French property 8

Tax on holding French property – individuals 10

Tax on holding French property – companies 14

Tax on disposal of French property 20

Conclusions 23

Investing in property in Germany 24

Ownership of German property 26

Tax on acquiring German property 28

Tax on holding German property – individuals 30

Tax on holding German property – companies 31

Tax on disposal of German property 33

Conclusions 35

Investing in property in the United Kingdom 36

Ownership of UK property 38

Tax on acquiring UK property 39

Tax on holding a UK property 44

Tax on disposal of UK property 49

Property funds 51

Islamic ﬁnance and UK real estate 52

Summary 54

Our international team 74

About us 76

Contents

Building Blocks - Structuring European Property Investments

France and, in particular, Paris and its regions

comprise one of the most important economic hubs

in the world. Paris contributes 31% of the overall Gross

Domestic Product (GDP) of France and 5% of the

overall GDP in Europe.

Paris is also the second most popular

destination in Europe for international

real estate investment, representing

approximately 35% of all investment

carried out by foreign investors

in France.

As a prestigious world city, Paris

is currently subject to a vast

infrastructure project that aims to

maintain and enhance the city’s

international stature. The ‘Grand

Paris’ project covers several themes.

Those likely to inﬂuence the real

estate market in the coming years

involve the development of business

districts around Paris (which could

impact commercial property in Paris)

and the creation of a new transport

masterplan that will connect

important transport hubs with the

new districts around the city.

Investing in property in France

Building Blocks - Structuring European Property Investments

Ownership of

French property

Non-residents are free to acquire

real estate in France either directly

or through other vehicles. It is

common for French property to be

acquired through a special purpose

vehicle called a Société Civile

Immobilière (SCI).

More complex ownership structures

may be introduced by overseas

investors, including the holding of

French property through a French

vehicle which is itself owned by

companies established in

another jurisdiction.

France draws a distinction between

commercial and residential real

estate for tax purposes and the

rules dier substantially between

the two types of property interest.

It also distinguishes, for some tax

purposes, between the tax which is

applicable to individual holders of

French property and that applicable

to corporate entities holding

French property. In contrast with

the UK, France does not distinguish

between properties which are

used for trading and those used for

investment purposes. However, the

acquisition of properties for resale

on a habitual basis may result in the

characterisation of rental income and

capital gains as trading income for

tax purposes, under the real estate

dealer status (Marchand de biens).

Property funds

France also oers a special

tax regime for French property

companies, such as the Organisme

de placement collectif immobilier

(OPCI). The OPCI is an unlisted real

estate investment vehicle that is

subject to the approval of the French

ﬁnancial market authorities, Autorité

des Marchés Financiers (AMF), which

could either take the form of:



a real estate fund (joint ownership

of real estate assets) without legal

personality, Fonds de placement

immobilier (FPI), or



a limited liability real estate

company under the form of a

Société Anonyme (SA) or Société

par Actions Simpliﬁée (SAS) with

a variable capital, société de

placement à prépondérance

immobilière à capital variable

(SPPICAV).

Investing in property in France

SPPICAVs are more often used by

investors. Indeed, a SPPICAV beneﬁts

from a corporate tax exemption

on all its income/proﬁts, subject to

distribution requirements as follows:



85% of the distributable income

from the previous ﬁnancial

year resulting from the leasing

of properties held directly or

indirectly through a partnership

(société de personnes).



50% of the net capital gain from

the sale of real estate assets

carried out directly or indirectly

during the ﬁnancial year or the

previous ﬁnancial year through

a partnership.



100% of dividends paid by

subsidiaries exempt from

corporate income tax on their real

estate activities (ie subsidiaries

beneﬁting from the sociétés

d’investissements immobiliers

cotées (SIIC) regime).

France also has a speciﬁc tax regime

applicable to property funds listed

on a recognised stock exchange,

the real estate investment trust

called SIIC. Broadly, a SIIC is exempt

from French tax on capital gains

and rental income if a number of

conditions are satisﬁed, in particular,

distribution obligations. SIICs are less

often used than SPPICAVs, notably

because of:



the distribution obligations being

higher than that applicable to

SPPICAV



the required diversity of the SIIC

shareholders (a single shareholder

or a group of shareholders acting

together cannot hold more than

60% of the share capital or voting

rights). There is no equivalent rule

for SPPICAV.

Building Blocks - Structuring European Property Investments

Tax on acquiring

French property

The purchase of real estate in

France can be subject to registration

duties, at a minimum rate of 5.09%,

or to value added tax (VAT) at a rate

of 20%, depending upon the status

of the seller and the characteristics

and use of the property. VAT is not

applicable to the acquisition of

residential properties from non-

professional sellers.

Registration duties for acquiring

commercial and residential property

The amount of registration duties

depends upon whether it is the

French property or a company

holding the French property that

is acquired.

The acquisition of property that

was constructed more than ﬁve

years before the date the property

was acquired will be subject to the

following taxes and duties, which

can amount to up to 7% of the

purchase price:



A registration duty of 5.09%,

although most French

‘départements’, including Paris,

apply a 5.81% rate.



Additional tax (Contribution de

Sécurité Immobilière) equal to 0.1%

of the value of the property.



Notary fees of 0.799% (plus VAT) of

the value of the property (although

fees can be negotiated if they

exceed a certain amount).

Since 1 January 2016, an additional

0.6% tax has been levied on the sale

of oces, commercial and storage

premises in Ile-de-France (Paris area).

Real estate dealers can beneﬁt

from a reduced rate of registration

duty of 0.715%. In broad terms, a

real estate dealer is a company

or individual (subject to VAT) who

undertakes to rebuild or to resell the

building within a speciﬁc time period.

Investors acquiring a property which

was constructed less than ﬁve years

before the date of acquisition may

also beneﬁt from this reduced rate.

Registration duties for acquiring

shares in predominant real

estate company

Registration duties will apply to the

Investing in property in France

acquisition of a predominant real

estate company - ie a privately

held company whose assets

mainly consist of French real

estate properties and/or certain

shares (such as shares in SCIs). The

registration duties in this case will

be imposed at the rate of 5% of the

purchase price.

Given the lower registration duty for

a share acquisition (as compared

with a direct acquisition of the

property), investors may prefer

to acquire shares in a real estate

company. However, the acquisition

of a company’s shares implies that

the purchaser acquires all of the

company’s history and its liabilities

and it would not be possible to

amortise the acquisition value of the

property for tax purposes.

VAT on acquisition of

commercial properties

A seller must charge VAT on the

sale of certain commercial real

estate assets if he or she qualiﬁes

as a taxable person acting as such

(that is, holding the property for the

purposes of a business in its business

capacity). Otherwise, the sale is

exempt from VAT. Whether the sale

of such property by a taxable person

will be subject to VAT will depend on

the qualiﬁcation of the property as

‘new’ or ‘old’ for VAT purposes.

The seller will be required to

charge a purchaser VAT on their

acquisition of a ‘new’ property (that

is, property supplied or sold within

ﬁve years of completion or signiﬁcant

redevelopment). Conversely, the

transfer of an ‘old’ property (that is,

any property not regarded as new)

will be exempt from VAT unless the

seller has elected, under certain

conditions, to charge VAT.

If the purchaser is required to pay

VAT to the seller, the VAT is normally

recoverable by the purchaser where

the purchaser undertakes an activity

subject to VAT (for example, the

building is used for the business

activities of the purchaser or the

building is leased by the purchaser

to tenants who are charged VAT).

The application of VAT to such

transactions also has an impact

on the registration duty regime

and speciﬁc VAT rules (with lower

registration duties) apply to disposals

of building land (terrain à bâtir).

Building Blocks - Structuring European Property Investments

VAT at the rate of 20% is applied to

the purchase price and any other

consideration provided to the seller.

Unless the parties agree otherwise,

VAT is payable by the purchaser.

As a matter of principle, there is

no French VAT applicable on the

acquisition of shares in a property

holding company.

Tax on holding French

property – individuals

Taxation of rental income

Individuals (whether or not resident in

France) who hold a French property

which is rented out to third parties will

be subject to French income tax on

the rental income they derive, unless

otherwise provided by a tax treaty.

The income subject to French

taxation will comprise the rental

income (and any expenses paid

by the tenant which should have

been borne by the landlord) after

deducting expenses clearly relating

to the French property (including

costs of repairs, maintenance and

improvements, employee costs,

local taxes, managing agent’s fees,

insurance premiums and interest

on a loan to ﬁnance the purchase

and/or refurbishment of the French

property). Registration duty paid

on the acquisition of the French

property is not deductible from the

rental income, although it is taken

into account in determining any

taxable capital gain on the sale of

the property.

Taxable rental income will be subject

to income tax at progressive rates

up to 45%, as well as social security

contributions of 17.2%. From 1 January

2018, non-French tax residents may

not be taxed at an eective rate

below 30% on their French sourced

taxable income (for the portion of

income exceeding €27,478). As an

exception, however, non-French

tax residents may beneﬁt from a

more favourable eective tax rate

(ie below 30%) where they can show

that, if their French and foreign

sourced income were to be taxed

in France, the applicable eective

French tax rate would be below 30%.

As a matter of principle, non-French

tax residents are also liable to

social security contributions on their

taxable rental income (ie 9.2% of

Investing in property in France

General Social Security Contribution

(CSG) + 0.5% of Social Security Debt

Repayment Contribution (CRDS) +

7.5% of solidarity levy = total of 17.2%

of social security contributions).

However, non-French tax residents

who are aliated to a compulsory

social security system, other than the

French one, within an EEA country

(EU, Iceland, Norway, Liechtenstein)

or Switzerland, are exempt from

the CSG (9.2%) and the CRDS (0.5%).

Please note that although the United

Kingdom left the European Union

on 1 January 2021, British residents

continue to beneﬁt from

this exemption.

Nevertheless, the solidarity levy (7.5%)

will still be applied to this income.

Where the rental activity results

in a loss, the losses may be oset

against other taxable income of

the individual owner (up to a limit

of €10,700) and any excess can be

carried forward for ten years and

oset against future rental income.

VAT on rental income

In principle, the letting of French

property falls within the scope of VAT.

However, there are many exceptions

which apply. Broadly, the letting of:



furnished property (activity of

a commercial nature) is always

subject to VAT



unfurnished property (activity of a

civil nature) is exempt from VAT but

the seller can elect to apply VAT



residential property is exempt from

VAT and the seller cannot elect to

charge VAT.

Note that, where the French building

is over 15 years old and the landlord

is a legal person, a rental tax at the

rate of 2.5% levied on the annual

rental income (contribution sur les

revenus locatifs) is charged to

the landlord.

Wealth tax

Non-French tax residents who

directly or indirectly own French real

estate assets are liable to French

real estate wealth tax (impôt sur la

fortune immobilière (IFI)), provided

that the global net value of all their

French real estate assets exceeds

€1,300,000 on 1 January of a

given year.

Building Blocks - Structuring European Property Investments

The application of wealth tax will,

however, depend on any applicable

tax treaty between France and

the country in which that person is

resident. It is noted, however, that

not all French tax treaties deal with

wealth tax and, in the absence of

speciﬁc treaty provisions to the

contrary, French domestic tax rules

will apply.

The IFI will be assessed on the net

value of real estate assets held

by the individual, either directly or

indirectly through one or several

entities. Where real estate assets

are held through one or several

entities, only the portion of the value

of the shares directly owned by the

individual representing the value of

the underlying real estate assets will

be subject to the wealth tax.

Debts contracted by the individual

for the acquisition, refurbishment,

maintenance, construction or

expansion of real estate assets

subject to the IFI will be deductible

for the computation of the net value,

subject to some restrictions: bullet

loan repayable at maturity (ie ‘in ﬁne

loan’) will be subject to a deemed

straight-line amortisation; exclusion

of interfamilial loans; general

limitation for debts exceeding 60% of

real estate assets with an aggregate

value exceeding €5m.

Investing in property in France

The applicable progressive rate for wealth tax ranges from 0% to 1.5%:

Net value of the French real estate assets 2023 rates

Up to €800,000 0%

Between €800,001 and €1,300,000 0.5%

Between €1,300,001 and €2,570,000 0.7%

Between €2,570,001 and €5,000,000 1%

Between €5,000,001 and €10,000,000 1.25%

Above €10,000,000 1.5%

Inheritance and gift tax

Unless otherwise provided for in

a double tax treaty, under French

domestic tax rules, the transfer of

a real estate property located in

France by a non-French tax resident

either by way of an inheritance or a

gift is subject to French inheritance or

gift tax. The applicable tax rates will

vary according to the kinship existing

between the deceased (or donor)

and the beneﬁciary as well as the

amount of the inheritance/gift. The

rates of tax range from 5% to 60%.

The inheritance and gift tax will be

levied on the value of the property

if it is held directly by the individual

or on the value of the shares if the

French real estate is owned by the

individual through a corporate entity.

Building Blocks - Structuring European Property Investments

Tax on holding French

property – companies

Taxation of rental income

Companies renting out real estate

in France are subject to corporate

income tax on the proﬁts from such

activity. The taxable income is equal

to the accrued gross rental income

less accrued deductible expenses

provided that they clearly relate to

the French rental activity.

Taxable income is subject to

corporate income tax at the standard

tax rate (ie 25% as of 1 January 2022)

and most tax treaties signed by

France do not prevent France from

taxing such income.

Expenses deductible against rental

income include employee costs, local

taxes (such as local real estate taxes),

registration duty on the acquisition

of the property (which can either

be fully deducted as an expense

for the ﬁnancial year in which the

acquisition was made or depreciated

over the useful life of the property),

other general expenses such as

management fees and insurance

premiums, and interest on a loan to

purchase and/or refurbish the French

property (subject to limitations for

related party loans).

For non-French companies

purchasing French property through a

partnership (which is itself not subject

to French corporate income tax), the

taxable income will be determined at

the level of the French partnership

but taxed in the hands of the

corporate partner.

VAT on rental income

The letting of furnished premises

(activity of a commercial nature) is

liable to French VAT at the standard

rate of 20%, which must be added to

the rent charged to the tenant by the

landlord of the premises.

The letting of unfurnished premises

(activity of a civil nature) is, in

principle, exempt from VAT and

instead (provided the building was

completed more than 15 years ago)

subject to a 2.5% rental tax. However,

the landlord can elect for VAT to

apply after the beginning of the

rental activity, in which case, there is

no rental tax payable, but VAT

is applicable.

Investing in property in France

A VAT election (which is applicable

only to the relevant building) is valid

until it is revoked. A VAT election can

be made where the tenant is itself

liable to VAT and uses the building

for its commercial activities. The VAT

election can also be made where the

tenant is not subject to VAT but in

that case, the VAT election must be

expressly provided for in the

lease contract.

Territorial economic contribution

(CET)

The CET is levied on resident and

non-resident companies operating a

French business. The CET comprises

the following two taxes:



Cotisation foncière des

entreprises (CFE) which is

assessed on the rental value of

the French property used by the

entity and subject to land tax

(taxe foncière). The tax rate is set

annually by local authorities.



Contribution sur la valeur ajoutée

des entreprises (CVAE) which is

payable by companies with a

turnover of at least €500,000

(excluding VAT) and assessed on

the added value of the companies

(broadly equal to the dierence

between the turnover and the

production costs). The rate of the

CVAE is progressive and depends

on turnover (0.25% for companies

with a turnover between €500,000

and €3,000,000, up to 0.75%

for companies with a turnover

exceeding €50,000,000).

The amount of CFE and CVAE is

capped at 2% of the added value

generated during the ﬁscal year.

The CET applies to entities which

conduct a professional activity

subject to French corporate income

tax, which includes non-resident

companies with a French permanent

establishment. However, foreign

companies that rent out real estate

in France (other than unfurnished

residential properties) will be

subject to the territorial economic

contribution even if they do not

have a permanent establishment

in France.

Where a non-French resident

company only undertakes an activity

of letting out French property,

that company will be treated as

Building Blocks - Structuring European Property Investments

carrying on a professional activity if

it rents out a furnished residential or

commercial property (irrespective

of the rental income), or it rents out

unfurnished commercial property and

the rental income exceeds €100,000

per year.

Repatriating proﬁts to

non-resident investors

Non-resident investors in French

real estate do not incur any further

tax consequences, other than

those referred to herein, upon the

repatriation of their rental income

or capital gains, when the French

property is held through

a partnership.

However, when the property is held

through a non-transparent corporate

vehicle (that is, a company subject

to corporation tax) tax is withheld

from the proﬁts repatriated to

non-resident investors, at the

following rates:



12.8% on dividends and assimilated

distributions paid to individuals.



25% on dividends and assimilated

distributions paid to legal entities.



75% on income paid to an

individual or legal entity domiciled

in a non-cooperative country

or territory.

Most double tax treaties apply a

lower withholding tax rate or often

prevent the application of the French

withholding tax.

There is no withholding tax on

dividends paid by a French subsidiary

to a parent company which holds a

10% minimum participation (or 5% in

certain circumstances) for at least

two years where the parent company

is resident in an EEA Member State.

Investing in property in France

Ownership through a trust

The ownership of French properties (directly or indirectly) through a trust gives

rise to the following consequences:

Status of people concerned Tax obligations

Settlor/Deemed settlor

French wealth tax ﬁling requirements

and payment

Beneﬁciaries French inheritance tax following the

death of the settlor

Trustee Speciﬁc ﬁling requirements requiring

disclosure of the existence of the

trust and any speciﬁc event occurring

within the trust.

Failure to comply with this gives rise

to a 20,000 penalty.

1 On the death of the settlor, the beneficiaries are deemed to be the new settlors of the trust

and they are so-called deemed settlors.

2 Otherwise the settlor/deemed settlor may be obliged to pay a tax of 1.5%.

Building Blocks - Structuring European Property Investments

Ancillary taxes

The ownership of a French property

also requires the payment of certain

ancillary taxes.

The two main local taxes are the

dwelling tax (taxe d’habitation),

payable by an individual who uses

the furnished residential property

as a secondary residence (ie the

occupant), it being speciﬁed that the

dwelling tax has been repealed for

main residences as from 1 January

2023; and the real estate tax (taxe

foncière), payable by the landlord.

Both taxes are based on the

cadastral rental value of the property

(which is lower than its rental value)

and the tax rates are ﬁxed on a

yearly basis by the local authorities.

Moreover, there is a speciﬁc

tax on the ownership of oce

premises, commercial premises and

warehouses in the Paris area which

is due annually from the owner of the

building. Depending on the nature of

the premises (oce, commercial or

warehouse), the amount of tax

will vary.

Annual tax of 3% on French

properties

All French and foreign legal entities

(including trusts and investment

funds) which directly or indirectly

own real estate in France are subject

to an annual tax equal to 3% of the

fair market value of the property (as

determined on 1 January each year)

unless one of the exemptions applies.

Exemptions

The 3% tax does not apply to:



Sovereign states, public bodies

and those entities with or without

legal personality whose shares

or ownership interest are held (as

to more than 50%) by a sovereign

state or a public body.



Entities that directly (or indirectly)

own real estate in France where

the fair market value of the real

estate is less than 50% of the total

value of the French assets which

are held directly or indirectly by

the entity. French properties which

are allocated to or used for a

professional activity (for instance,

hotels used in the hotel business)

by the entity (or a related party)

Investing in property in France

are not included for the purposes

of computing the 50% ratio.



Entities (and their wholly owned

subsidiaries) whose stocks are (i)

admitted to listing on a regulated

market and (ii) regularly and

signiﬁcantly traded.



Certain entities that have their

registered oce in France, in an

EU Member State or in a country

that has concluded a double tax

treaty with France that includes an

administrative assistance or non-

discrimination clause. This extends

to some pension funds, non-listed

open ended real estate funds

and equivalent foreign funds. This

exemption also applies to entities

owning directly (or indirectly)

French properties, and whose

portion of the French properties

does not exceed either €100,000

or 5% of the fair market value of

those French properties. Moreover,

in many cases the 3% annual tax

can also be avoided if the entity

discloses to the tax authorities the

names of its shareholders.

Consequently, entities located in tax

haven countries, or which cannot

beneﬁt from tax treaty beneﬁts (or,

in some circumstances, which do not

disclose details of their shareholders)

would be subject to the annual

3% tax charge.

The purpose of this tax is to compel

companies to disclose details of their

shareholders so that the French tax

authorities can identify the individual

shareholders who ultimately own

the relevant property to ensure that

those individuals have properly

reported the property in their French

wealth tax returns.

Building Blocks - Structuring European Property Investments

Tax on disposal of

French property

As outlined above, the sale of real

estate and/or shares of predominant

real estate companies will be

subject to VAT or to registration duty

computed on the price (or the value

of the shares, if higher).

Non-French residents are liable to

a French withholding tax on any

capital gains arising from the sale

of either a real estate property in

France or the sale of shares of a real

estate company whose assets mainly

consist of French properties. This

withholding tax will not apply if the

non-French resident seller carries out

a business in France and has used

the property for the purpose of their

business. Whilst most tax treaties

provide France with the right to tax

gains from the sale of real property,

this is not necessarily the case with

respect to the sale of shares of real

estate companies.

Tax on sale of French property (or

shares in predominant real estate

companies) by individuals

Taxable capital gains on a sale of

real estate are calculated as the

dierence between the sale price for

the property and the price paid by

the seller to acquire or improve the

property (including expenses such as

works improvement).

Capital gains arising from the sale

of French real estate - either directly

or indirectly - (for instance, through

the sale of shares in a company

holding the property or through

the sale of a partnership interest in

a partnership holding French real

estate), are taxed at a ﬂat 19% rate

regardless of whether the seller is

resident in France or elsewhere. If

the seller is a French tax resident,

social security contributions at 17.2%

are also due. If the seller is a non-

French tax resident, please refer to

our comments under the ‘Taxation of

rental income’ section, relating to the

application of French social security

contributions on rental income

realised by non-French tax residents.

Investing in property in France

In summary, the following tax rates are applicable to taxable capital gains:

French tax

resident

EEA tax

resident

(and also UK)

Non-EEA tax

resident

(including NCST)

Income tax rate 19% 19% 19%

Exceptional tax on

high income

Up to 4% Up to 4% Up to 4%

Surtax on real

estate

Up to 6% Up to 6% Up to 6%

Social charges 17.2% 7.5% 17.2%

Total 46.2% 36.5% 46.2%

Individuals and transparent entities

may also be liable to a surtax

applicable to capital gains on a

sale of property involving real estate

assets or rights when the taxable

amount (determined by applying an

allowance for the holding period)

exceeds €50,000. Tax paid on

the sale of such taxable assets is

increased by 2% (if the capital gain

exceeds €50,000) or 6% (if the capital

gain exceeds €260,000). This surtax

applies to the full amount of the

capital gain.

It is noted, however, that taxable

gains are reduced in proportion

to the length of ownership of the

property if the property has been

held for more than ﬁve years. The

reduction is equal to 6% of the gain

for each year of ownership between

the sixth and the 21st year and the

reduction is equal to 4% for the 22nd

(or ﬁnal) year. Accordingly, the sale

of a property held for more than 22

years is exempt from income tax.

The gain computed for the social

security contributions is also reduced

by 1.65% for each year between the

sixth and the 21st years, and then

reduced by 1.60% for the 22nd year

and 9% per year after 22 years.

Total exemption from social security

contributions will apply for property

held for more than 30 years.

Building Blocks - Structuring European Property Investments

Tax on sale of property

by companies

Capital gains realised by both French

resident and non-French resident

corporate entities on the sale of

French real estate and the sale of

shares in predominantly French real

estate companies are generally

taxed at the standard corporate

income tax rate, unless otherwise

provided for by a tax treaty.

The computation of the capital

gain will depend on where the seller

company is resident for tax purposes:



If the seller company is a French

tax resident, the capital gain

is calculated as the dierence

between the fair market value of

the building at the time of disposal

and the net book value of the

building. The gain will be subject

to French tax at the standard

corporate income tax rate (25%)

together with additional charges.



If the seller company is not a

French tax resident, then broadly

the capital gain will also be

calculated as the dierence

between the fair market value of

the building at the time of disposal

and its net book value (although

some speciﬁc rules are applicable

to companies resident in a state

situated outside the EEA). The

gain will be subject to tax at the

standard corporate income tax

rate (25%) together with

additional charges.

Tax on sale of shares of a

predominant real estate company

by companies

Capital gains on the sale of shares

in a predominant French real estate

company by:



A French resident seller company

will give rise to French corporate

income tax at the standard rate

(25%). In addition, if the company’s

corporate income tax amount

exceeds €763,000, a social

contribution equal to 3.3% of the

tax due will be applicable (ie

an eective tax rate of 25.83%).

However, capital gains from the

sale of shares in listed companies

whose assets mainly comprise

French immovable real estate will

be taxed at a reduced corporate

tax rate of 19%.

Investing in property in France



A non-French resident seller

company will typically give rise to

French corporate income tax at

the standard rate. Most French tax

treaties provide France with the

right to tax capital gains arising

from the disposal of shares of a

predominant French real estate

company. Unless otherwise

provided by a tax treaty, capital

gains derived by a non-French

resident corporate seller from

the sale of shares in a quoted

predominant French real estate

company will be subject to a

withholding tax at a reduced

corporate tax rate of 19%.

Conclusions

Investing in French property can give

rise to a number of tax issues and

early identiﬁcation and planning

for such issues is key to managing

the holding of French property in an

ecient manner. Financing of French

property through loans can also be

taken into account in calculating

French tax liabilities and should be

considered at an early stage.

Building Blocks - Structuring European Property Investments

Investing in property in Germany

The German property investment market remains

strong. Investments have spread from the ‘big ﬁve’

cities of Berlin, Dusseldorf, Frankfurt, Hamburg and

Munich to secondary locations, with oce space

being the dominant use of properties, followed by

retail and logistics.

Whilst demand is still focused on

core real estate assets, the German

market is experiencing an increase in

investors willing to take risks.

In particular, foreign investors

are prepared to invest in forward

commitments and joint ventures with

German project developers.

Investing in property in Germany

Building Blocks - Structuring European Property Investments

There are several ways to invest in real estate in

Germany. An individual can purchase a property

directly or the investment can be made indirectly

using a German corporation or partnership.

Alternatively, German property can be acquired using

a non-German corporation or partnership.

Investment in German property

often takes the form of indirect

investment via single corporations

or partnerships that acquire the

German property (with the investor(s)

holding shares or interests in

that entity), or by using a holding

company that is the shareholder

in one or more subsidiaries, each

of which may own one or several

properties. Furthermore, such

investment vehicles can be

domiciled either in Germany or

in a foreign country.

For many transactions involving

investment into German real estate

from overseas investors, the investor

establishes a new company outside

Germany (but within the EU) to serve

as the property owning company

(Propco). The purpose of the Propco

will be the holding, managing and

renting of real estate assets. Such

structures are aimed at limiting

the German taxation to corporate

income tax (CIT) of 15% (plus solidarity

surcharge), being 5.5% of the CIT and

to exclude further taxation in the

form of German trade tax or German

withholding taxes.

Ownership of German property

Investing in property in Germany

A typical legal form used for such

types of transaction is a limited

liability company established under

Luxembourg laws as a Société

à responsabilité limitée (S.à.r.l).

Depending on the relevant

double tax treaty, other countries

can also provide similar tax

structuring options.

However, such structures may lead

to practical business limitations, as

they typically require the Propco to

avoid the creation of a permanent

establishment in Germany.

Overseas investors will also need to

consider German anti-avoidance

and double tax treaty overriding

regulations. Investors must ensure

that they have established

appropriate German and/or foreign

corporate structures, which will

require detailed analysis and review

before implementation of

an appropriate structure.

Germany

Investor

Rent

Other country

100%100%

Luxembourg

Dividends

S.à.r.l

Building Blocks - Structuring European Property Investments

Tax on acquiring

German property

The purchase of real estate in

Germany (whether in the form of

commercial or residential real

estate) is typically subject to real

estate transfer tax (RETT) and can

also be subject to value added tax

(VAT) at a standard rate of 19%,

depending upon the characteristics

and use of the property.

RETT rates have signiﬁcantly

increased in the past few years

and RETT now has an enormous

economic impact. The purchaser and

the seller are both liable to pay RETT,

however, in practice, the purchaser is

usually required to pay the full RETT

liability to the German tax authorities.

The RETT rates depend on the current

tax rates applicable and where the

real estate is located within Germany.

RETT currently ranges between

3.5%-6.5% of the purchase price of

the property.

Tax on acquiring shares in company

holding German property

In a share purchase transaction,

where the company or partnership

holds German property, German

RETT can also be due.

Under the current rules, RETT can

be triggered if a 90% or more

(economic) participation is acquired

in a company holding German real

estate, regardless of its legal form.

This is particularly the case if, within a

period of ten (in some cases 15) years:



a total of at least 90% of the

shares in a corporation or interests

in a partnership holding German

real estate are transferred directly

or indirectly to new shareholders/

partners, or



at least 90% of the shares in

a corporation or interests in a

partnership holding German real

estate are directly or indirectly

uniﬁed (legally or economically)

by a shareholder/partner or

its aliate(s).

Investing in property in Germany

Accordingly, the application of

German RETT in a share purchase

transaction involving a German

property holding company must be

carefully considered and depends

on the facts of the case. In addition,

acquisition structures need to be

bespoke, taking into account in

particular the holding and transfer

periods of ten to 15 years and the

percentage of shares/interests

to be transferred.

From 1 January 2024 onwards, it is

very likely that the RETT exemptions

rules for partnerships will not be

applicable anymore. Thus, a new

fundamental change of the German

RETT concept in particular for

the RETT exemption rules is being

discussed and a ﬁrst draft of the

new law has been issued recently.

The basic idea of the new RETT

concept is that RETT exemption rules

shall be the same regardless of the

legal form of the German property

holding entity (eg corporation or

partnership). However, the draft is

still subject to discussion and, as the

Federal Council (Bundesrat) has to

give consent to the new rules, it is

unclear whether the new rules will be

eective from 1 January 2024.

VAT on acquisition of

German property

The sale of German real estate is, in

principle, exempted from VAT.

However, an option to apply

German VAT can be made by the

seller if the purchaser qualiﬁes as

an entrepreneur for VAT purposes.

The purchaser would then be liable

to pay VAT on the purchase price

and can in turn deduct input VAT.

However, input VAT recovery is only

available to the extent that the

German property is used to earn

income which is not exempt from VAT

(such as rental income arising from

property which has been ‘opted

to tax’).

If the real estate is let at the time of

sale, the sale of the property may

qualify as a transfer of a business

as a going concern, if various other

Building Blocks - Structuring European Property Investments

conditions are met, this would result

in the sale not being subject to

German VAT (and therefore an ‘option

to tax’ is not possible in this case).

The structure of any transaction

involving the transfer of shares in a

German property holding company

must be reviewed to determine

whether German VAT would apply, as

such a transfer can be treated as a

non-VATable transfer of a business

as a going concern, or it can be

treated as a VATable (but tax

exempt) transaction.

Tax on holding German

property – individuals

Taxation of real estate income

Individuals are generally subject to

German income tax in respect of

their real estate income (such as

rental income).

Most double tax treaties agreed

by Germany enable the jurisdiction

in which the property is located

to tax the real estate income from

that property. Consequently, even

those individuals having neither their

domicile nor their habitual abode in

Germany will generally be subject to

German income tax in respect of

their rental income from German

real estate.

Real estate income may also be

subject to German trade tax if

such income is attributable to a

permanent establishment located

in Germany. The applicable trade

tax rate depends on the location

of the real estate, but generally

ranges from 14% to 21%. However,

the individual may make use of a

trade tax exemption, provided their

business consists only of the holding

and management of real estate.

Furthermore, in certain circumstances

the individual may be eligible to

apply for income tax relief, which

could oset most of the trade tax

burden, if any.

Inheritance and gift tax

German inheritance and gift tax

may apply if German real estate

is received on the occurrence of

death or by way of donation. The

tax is essentially assessed on the

fair value of the real estate. Certain

tax exemptions are applicable. The

applicable tax rate depends on

Investing in property in Germany

the precise circumstances and

ranges between 7% and 50% for

individuals beneﬁtting from the

German real estate and between

30% and 50% for corporations.

Tax on holding German

property – companies

Corporate income tax

A German company will be subject

to CIT on its worldwide income

(including income derived from the

holding of German property).

A non-German resident Propco will

be subject to CIT on its income from

sources in Germany. This means that

the income from the real estate asset

(such as rent) is taxable in Germany.

Income which is subject to German

taxation is reduced by allowable

deductions, including interest

expense in relation to ﬁnancing.

However, the German interest

deduction barrier (Zinsschranke)

rules limit the deductibility of interest

expense over interest income (net

interest expense) to 30% of an

entity’s earnings before interest,

taxes, depreciation and

amortisation (EBITDA).

Interest includes all interest

payments, receipts and/or accruals,

whether to or from a shareholder, a

related party or a third party (such

as the ﬁnancing bank). There is an

annual threshold of net interest

expense of the entity of up to €3m

where, below this threshold, the

interest deduction barrier rule does

not apply. Therefore, the interest

deduction barrier basically plays no

role provided the overall net interest

expenses of the Propco are below

the threshold of €3m.

From 1 January 2024 onwards, it is

likely that the interest deduction

barrier rules will be tightened.

However, the draft is still subject to

discussion and it is unclear whether

the new rules will be eective from 1

January 2024.

The income (less allowable

deductions for certain expenses) will

be subject to CIT at the standard

rate of 15% plus a solidarity surcharge

of 5.5% of the CIT, which results in

an eective tax rate of 15.825%. An

income tax return must be ﬁled once

a year.

Building Blocks - Structuring European Property Investments

Furthermore, German real estate

income is subject to trade tax if the

property qualiﬁes as a business

asset and is allocated to a German

permanent establishment.

German real estate will qualify as a

business asset if it is:



used in connection with business

activities (such as trading)



held by a business partnership

(rather than by a pure asset

managing partnership), or



held by a corporation (directly or

indirectly via a partnership).

The applicable trade tax rate will

depend on the location of the

German real estate (although the

rate generally ranges from 14% to

21%). Propco may be eligible to

beneﬁt from a trade tax exemption,

provided its business consists

only of holding and management

of real estate. However, various

requirements must be met in order to

take advantage of this exemption,

and tax structuring must be carefully

implemented. Alternatively, trade

tax can be avoided by an inbound

investment structure which avoids

the creation of a permanent

establishment.

VAT on rental income

Rental income is usually exempted

from VAT, but where certain

conditions are satisﬁed, an ‘option

to tax’ can be made in respect of

commercial property only.

Input VAT recovery (or deduction

against VAT payable to the German

authorities) can then be obtained.

Input VAT would include VAT payable

in respect of the purchase price

of the property, as well as VAT

on construction and other costs.

However, input VAT recovery is only

available to the extent that the

German property is used to earn

income which is not exempt from VAT

(such as rental income arising from

property which has been ‘opted

to tax’).

Investing in property in Germany

Repatriating proﬁts to

non-resident investors

If the entity holding the German

property is a company incorporated

in Germany or eectively managed

in Germany, the repatriation of

proﬁts to non-resident investors can

trigger German withholding taxes

on dividends paid to such investors.

The German withholding tax of 25%

plus solidarity surcharge, resulting

in an overall tax rate of 26.375%, can

be eliminated under the EU Parent-

Subsidiary Directive if the investor is a

parent company located in the EU or

can be reduced or eliminated under

applicable German double

tax treaties.

Provided that a Propco incorporated

outside Germany does not have

its eective place of management

in Germany (ie it is not resident

in Germany for tax purposes),

repatriating proﬁts to non-resident

investors by way of dividends should

not result in a German withholding

tax obligation at the level of Propco.

Tax on disposal of

German property

Tax on sale of German property by

individuals

Capital gains from the sale of

German real estate are only subject

to German income tax if:



The property qualiﬁes as a

business asset (such as in the case

of short term trading), or



The property was held for ten

years or less.

Where the capital gains are

taxable, individuals are subject to

a progressive income tax rate of up

to 45%, plus a solidarity surcharge,

resulting in an aggregate maximum

tax rate of 47.475%.

Most double tax treaties agreed by

Germany provide for the jurisdiction

in which the real estate is located

to be able to tax the gains relating

to the sale of real estate in that

jurisdiction. Consequently, even

Building Blocks - Structuring European Property Investments

those individuals having neither their

domicile nor their habitual abode

in Germany are generally subject

to German income tax in respect of

gains arising from the sale of German

real estate.

Furthermore, capital gains from

the disposal of real estate may be

subject to German trade tax if such

capital gains are attributable to a

permanent establishment located

in Germany. The applicable trade

tax rate depends on the location

of the real estate, but generally

ranges from 14% to 21%. However,

the individual may make use of

a trade tax exemption, provided

their business consists only of the

holding and management of real

estate. Furthermore, in certain

circumstances, the individual may be

eligible to apply for income tax relief,

which could oset most of the trade

tax liability, if any.

Tax on sale of German property

by corporations

Proﬁts resulting from a sale of

German real estate by a German

corporation or Propco are subject to

CIT at a rate of 15%, plus a 5.5%

solidarity surcharge, ie the aggregate

tax burden is 15.825%.

German trade tax may only arise to a

German corporation selling German

real estate or to a non-German

Propco that has a permanent

establishment in Germany (such as

a ﬁxed place of business). Capital

gains from the disposal of real estate

may be subject to German trade tax

if the property qualiﬁes as a business

asset and is allocated to a German

permanent establishment. The

applicable tax rate depends on the

location of the German real estate

(but generally ranges from 14% to

21%). However, Propco may make use

of a trade tax exemption, provided its

business consists only of the holding

and management of real estate.

Various requirements must be met

to take advantage of this exemption

and careful implementation of tax

structuring is required. Alternatively

trade tax can be avoided by an

inbound investment structure

which avoids the creation of a

permanent establishment.

Investing in property in Germany

Conclusions

Investing in German real estate can

give rise to numerous tax issues

and early identiﬁcation and correct

planning and structuring of the

transaction is necessary to ensure

that the property is acquired and

held in an ecient manner.

Where ﬁnancing of the property

results in net interest expense in

excess of €3m, consideration should

be given to the German interest

deduction barrier rules which can

limit the availability of tax relief for

ﬁnancing costs. Also, the possible

change of the interest barrier rules

needs to be followed closely.

In addition, planned share deals

need to be closely monitored

given the expected change in

the RETT regime.

Building Blocks - Structuring European Property Investments

Investing in property in

the United Kingdom

The UK real estate market has historically been very attractive to non-UK

resident investors, with consistent ﬁnancial performance and steady demand

for the introduction of foreign capital supported by a stable political and

legal system and a broadly supportive taxation regime for such investment.

London remains a key ﬁnancial

centre and a hub for international

investment, and the UK as a whole

oers many advantages for inward

investment in terms of geographic

location, language, academic

centres of excellence and access

to talent and infrastructure. Recent

years have seen considerable

expansion in specialist areas of

the real estate development and

investment market, including student

accommodation, build-to-rent and

‘big box’ storage facilities.

Many of these factors remain

present, notwithstanding continued

uncertainty in political, social

and economic terms caused by

the economic impact of the war

in Ukraine and the adjustments

following Brexit, with the UK’s long

term treatment of the remaining

EU laws still on its statute books

following departure from the trading

bloc highly uncertain.

However, property investors typically

take a longer term view of a market

and continue to put their faith in

the UK economy despite current

headwinds.

Against this backdrop, the UK

taxation regime for property has

been similarly turbulent in recent

years, with what has seemed to be

an annual targeting of residential

property investment both in terms

of new taxes and an extension of

existing taxes (the annual tax on

enveloped dwellings, non-resident

capital gains tax on residential

property and stamp duty land tax

increases) joined by legislation

aimed at ensuring UK tax applies to

all proﬁts of property development,

including those made by non-

residents and ﬁnally the introduction

of non-resident CGT to all direct and

indirect interests in UK land. However,

reforms to the Real Estate Investment

Trust (REIT) rules have made it more

accessible and widened the types of

investors who can beneﬁt from this

tax-ecient investment vehicle.

Investing in property in the United Kingdom

Building Blocks - Structuring European Property Investments

Ownership of UK property

Non-residents are free to acquire

real estate in the UK either

directly or through other vehicles.

It is common for UK property

(particularly commercial property)

to be acquired through non-UK

resident corporate entities.

More complex ownership structures

may be introduced by overseas

investors, including separating

ownership of the property from

any underlying business using the

property (a so-called ‘Propco/

Opco’ structure) and the holding

of UK property through partnership

structures or unit trusts (which

can sometimes beneﬁt from more

favourable tax treatment). These

structures can also provide ﬂexibility

for the owner.

These structures are also heavily

inﬂuenced by the dierent tax

treatments which are applied to UK

real estate depending on whether

the property acquired will be used for

the purposes of a trade or held as

an investment.

Key distinctions drawn for UK tax

The UK distinguishes between the

acquiring and holding of property for

medium to long term returns in the

form of rental income and capital

growth (typically termed ‘investment’)

and the acquiring of property for

onward sale or development/

redevelopment of property for

onward sale (typically referred to

as ‘trading’).

The UK also draws a distinction

between commercial and residential

real estate for UK tax purposes and

the rules dier substantially between

the two types of property interest,

generally resulting in considerably

higher tax charges for owners of

residential property. Prior to 6 April

2019, the rules also distinguished

between UK residents and non-

UK residents in respect of the

application of some taxes relating

to property, but gains made by

non-UK residents on non-residential

UK property are now also within the

scope of UK tax.

Investing in property in the United Kingdom

Tax on acquiring

UK property

The purchase of real estate in the

UK is typically subject to stamp

duty land tax (SDLT) and can also

be subject to VAT at a rate of 20%,

depending upon the characteristics

and use of the property.

SDLT for commercial properties

The UK charges a transfer tax, SDLT,

on the purchase of property interests

in England and Northern Ireland. SDLT

was originally UK-wide but has now

been replaced by Land and Buildings

Transaction Tax in Scotland and

Land Transaction Tax in Wales. These

systems are heavily based on the

SDLT rules and often, but not always,

mirror them. This guide only covers

the SDLT rules.

SDLT is applied on a sliding scale

depending on the price paid, with

dierent rates applicable to portions

of the overall price (the ‘slice’ system).

For commercial and mixed-use

properties, no SDLT is paid for the

ﬁrst £150,000 of the price, with 2%

applicable on the price between

£150,000 and £250,000 and the rate

of 5% applicable in respect of the

price over £250,000.

SDLT for residential properties

For residential properties, SDLT is also

applied on a sliding scale depending

on the price paid for the property

under the same ‘slice’ system as

above, but at the rates set out in the

table below.

Individuals acquiring

residential properties

For UK and non-UK resident

individuals holding only one

residential property or acquiring

the property to replace their main

residence, the SDLT applicable

should represent the usual rate

(referred to in the second column of

the table below).

Building Blocks - Structuring European Property Investments

An exemption is available for ﬁrst-time buyers, with the zero-rate threshold

expanded to £425,000 (although only properties being purchased for under

£625,000 are eligible for the relief).

Where the purchaser is a non-UK

resident, a further 2% surcharge will

apply for transactions which take

place on or after 1 April 2021.

However, where UK and non-UK

resident individuals already hold

one or more residential properties

(whether in the UK or elsewhere)

and acquire a further English or

Northern Irish property for more than

£40,000, the SDLT applicable to the

acquisition will represent the higher

SDLT rate set out in the third column

below, with a 3% ‘second home

surcharge’ applying. This can apply

in addition to the 2% non-resident

surcharge detailed above.

In either case, SDLT is charged at the

applicable rate on so much of the

price as falls within each band (eg

a property acquired for £1m by an

individual who is not eligible for any

reliefs or surcharges will attract SDLT

of £41,250).

Purchase price of property Usual rate

of SDLT

Higher SDLT rate

(additional dwellings

rate)

Up to £250,000 0% 3%

Over £250,000 to £925,000 5% 8%

Over £925,000 to £1.5m 10% 13%

Over £1.5m 12% 15%

Investing in property in the United Kingdom

Corporate and other entities

acquiring property

Where residential property is

acquired by a purchaser other

than an individual, the higher rates

in the third column of the table

above apply, regardless of whether

the purchaser holds any existing

residential property.

However, where residential property

is acquired for a purchase price

exceeding £500,000 by a company,

a partnership including a corporate

member, or a collective investment

scheme, a ﬂat 15% rate of SDLT on

the full purchase price is applicable

instead, unless certain exemptions

apply. Broadly, this penal SDLT

rate of 15% is designed to dissuade

ownership of residential property

for personal occupation through

corporate or other vehicles.

Acquisitions of residential property

which are made for certain business

purposes (such as for the purposes of

development with a view to resale of

the property or for letting to third-

party tenants unrelated to the owner

of the property) will not trigger this

penal rate.

As with individual purchasers

of residential property, where a

corporate purchaser is a non-UK

resident, a further 2% surcharge will

apply for transactions which take

place on or after 1 April 2021. This can

apply on top of the 15% rate, creating

an SDLT liability of 17% of the entire

purchase price.

There are also speciﬁc rules which

apply in relation to trusts.

For purchases of multiple residential

interests, an alternative multiple

dwellings relief (MDR) may be

available, which broadly applies by

considering the average price of the

dwellings in the overall transaction

and applying the SDLT bands to

that average price for each dwelling

in turn. This enables the purchaser

to pay lower rates of SDLT on the

chargeable consideration than if it

was taxed as a single transaction.

Investors and developers may

be able to take advantage of a

portfolio relief that applies the much

lower commercial rates of SDLT to

purchases of six or more residential

properties in a single transaction.

Note that a purchaser of six or more

Building Blocks - Structuring European Property Investments

dwellings can choose whether to

apply the commercial rates, or claim

MDR, but cannot do both.

Stamp duty on acquisition of shares

in real estate company

No SDLT will generally arise when

a purchaser acquires shares

in a company that itself holds

UK property. However, if the

property holding company has

been incorporated in the UK, then

stamp duty will be due on the

acquisition of shares in that UK

company calculated at 0.5% of the

consideration paid for the purchase

of the shares.

If, however, the company holding

the property has been incorporated

outside the UK, the purchase of such

shares does not generally give rise

to any charge to UK stamp duty or

stamp duty reserve tax.

As a result, there may be a tax

beneﬁt in acquiring and disposing

of UK property via a company,

particularly in relation to commercial

property and where that company

is incorporated in a jurisdiction that

does not impose any transfer tax on

dealings in shares.

Types of vehicle that can oer

eciency include companies and

non-UK resident (typically Jersey)

unit trusts. Types of structure that

can also oer transfer tax savings

include ‘forward sale/purchase’

arrangements where the land

purchase is independent of any cost

of construction of a property (which is

particularly of interest to developers).

VAT on acquisition of

commercial properties

Subject to certain exceptions, sales

of commercial property will generally

be exempt from VAT. Certain sales of

freehold interests in new or partially

completed commercial property

may be subject to VAT. Nevertheless,

commercial property owners have

the ability to ‘opt to tax’ their

property which would result in the

sale and letting of that property

being subject to VAT (currently at the

rate of 20%).

Broadly, if a purchaser is required to

pay VAT to a seller on the purchase of

the property (typically because the

seller has ‘opted to tax’ the property),

the purchaser will be able to claim

credit for or recover such VAT from the

Investing in property in the United Kingdom

UK tax authorities provided that the

purchaser has also ‘opted to tax’ the

property and is using the property to

make supplies (such as leasing the

property) which are subject to VAT.

Where the purchaser is required to

pay VAT to a seller, the purchaser will

have to pay SDLT on the purchase

price for the property, including

this amount of VAT. It is therefore

important to structure a property

purchase carefully to ensure that,

wherever possible, no VAT is charged

by a seller in addition to the purchase

price. This is generally possible

where a commercial property which

is fully or partially let is acquired by

the purchaser, under the so-called

‘transfer of a going concern’ (TOGC)

rules. Due diligence will be required

to determine the likely VAT treatment

of a property purchase and speciﬁc

drafting in the sale contract is often

necessary to ensure that no

VAT arises.

UK VAT is not applicable to the

acquisition of shares in a company.

VAT on acquisition of

residential properties

Unlike commercial property, most

dealings in residential property are

exempt from VAT as the ‘option to

tax’ does not apply. This can be

disadvantageous to investors as they

will be unable to recover VAT on their

own expenses (such as management

and advisory costs) because

they will be carrying on a

VAT-exempt business.

However, the construction of

residential property or the conversion

of non-residential property to

residential use may permit VAT to be

recovered by a developer without

that developer having to charge

VAT to the ultimate purchasers of

the property. The rules in this area

are complex, and specialist advice

should always be sought.

Building Blocks - Structuring European Property Investments

Tax on holding

UK property

Taxation of rental income for

UK residents

UK resident individuals owning UK

property which is rented out to third

parties will be subject to UK income

tax on the rental income they derive.

Taxable rental income will be subject

to income tax at progressive income

tax rates of up to 45%.

UK resident corporate entities

holding property will be subject to

UK corporation tax on rental income

derived. The corporation tax rate on

taxable rental income is currently 25%

(with a lower rate tapering from 19%

for small businesses).

The income subject to UK taxation

will comprise the rental income after

deducting allowable expenses

generally including costs of repairs

and maintenance, service fees,

managing agent’s fees, insurance

premiums and deductions for

ﬁnancing costs (subject to certain

restrictions outlined below).

Taxation of rental income for

non-UK residents

Taxable rental income from

investment property owned by a

non-UK resident individual is subject

to income tax at progressive rates of

up to 45%.

Prior to April 2020, taxable rental

income from investment property

owned by a non-UK resident

company was subject only to the

basic rate of UK income tax (currently

20%). However, in April 2020 the

scope of corporation tax was further

extended to the income of non-UK

tax resident companies carrying on a

UK property business, meaning that

corporation tax is now payable rather

than income tax.

In the case of an investor that is

a corporate entity incorporated

outside the UK, it is necessary to

ensure that the company is also

managed and controlled outside

of the UK to ensure that it is non-UK

resident for UK tax purposes.

Withholding tax should be deducted

from the rent by the tenant and paid

to the UK tax authorities unless an

Investing in property in the United Kingdom

appropriate application is made

to the UK tax authorities under the

‘Non-resident Landlord Scheme’.

Taxable rental income is determined

in the same way for non-residents as

it is for UK residents.

Deductions for ﬁnancing costs

Deductions for interest payable on

loans to ﬁnance the purchase and/

or refurbishment of UK property are

generally also available, subject to

certain restrictions provided by:



‘Transfer pricing’ rules - these

broadly operate to limit the

tax deduction for interest and

ﬁnancing costs to interest

and costs that are consistent

with arm’s length borrowing

arrangements. It is possible to

reduce taxable rental proﬁts

through careful acquisition

structuring, including through the

use of appropriate levels of bank

and related party ﬁnancing.



Speciﬁc rules restricting tax relief

for ﬁnancing costs of residential

property held by individuals for the

purposes of letting to third parties

so that all ﬁnancing costs incurred

by a landlord will be given a basic

rate tax deduction.



Rules that apply to limit

corporation tax relief for interest

to 30% of the company’s (or the

company’s group’s) UK earnings

before interest, tax, depreciation

and amortisation (EBITDA), subject

to a group ratio rule if this is more

favourable for the group. The

restriction on tax relief for interest

will not apply where net UK interest

expense is £2m or less.

Where the rental activity results in a

loss for income taxpayers, the losses

cannot be set o against non-

property related income but can be

carried forward indeﬁnitely and used

against future rental income. For UK

corporation tax payers, losses from

a UK property business may be set

against non-property related income

and also carried forward and set

against other income.

Building Blocks - Structuring European Property Investments

VAT on rental income

VAT is only applicable to rental

income on commercial property

where the owner of the property

has ‘opted to tax’ the property.

Repatriating proﬁts to

non-resident investors

If the property is held by a non-

UK resident company, it should be

possible to return proﬁts (including

proﬁts made on the sale of the

property) to investors without any

further UK taxation consequences.

Typical routes include payment of

dividends by the corporate entity or

repayment of investor debt. However,

any interest paid by the non-UK

resident company to an investor

may be subject to UK withholding

taxes at the rate of 20%, although

the withholding taxes can often

be eliminated or reduced under an

applicable double tax treaty or with

appropriate planning.

Inheritance tax (IHT)

If UK property (residential or

commercial) is owned by an

individual, regardless of where that

individual is resident or domiciled

for tax purposes, that property will

be subject to UK IHT. The value of

that property will form part of the

individual’s estate on death and will

be subject to IHT at 40% (subject to

any available exemptions or reliefs).

Certain lifetime gifts of UK property

held directly (such as gifts to a trust)

may also give rise to a charge to IHT

at 20% of the value of the gift.

Previously non-UK companies and

trusts were often used in structuring

UK property ownership so that an

individual did not hold UK property

directly; holding UK property through

a non-UK company could avoid

the value of the property being

subject to IHT. However, since 6

April 2017, using such structures

has not prevented a charge to IHT

on the value of any UK residential

property held in the structure. To the

extent that the value of shares in

non-UK companies or other similar

entities is derived from interests in

UK residential property (including

Investing in property in the United Kingdom

in certain circumstances loans

relating to UK residential property),

those shares are now subject to

IHT. Additional IHT implications also

arise where UK residential property

is held in a non-UK resident trust

(whether directly by the trustees or

via underlying non-UK companies).

These rules only apply to residential

property; UK commercial property

owned via non-UK companies

or other opaque entities remains

outside the scope of IHT where

the company is owned by a non-

UK domiciled (and not deemed

domiciled) individual, or a trust set up

by such an individual.

Annual tax on enveloped dwellings

(ATED) on residential property

In 2013, the UK introduced an annual

tax on high-value (ie worth over

£500,000) UK residential properties

held within companies or other

vehicles (whether UK resident or

non-UK resident) known as ATED.

This charge is not applicable to

commercial properties.

The charge is generally based on the

market value of individual dwellings

as at 1 April 2012 (or the purchase

price of the dwelling if purchased

after 1 April 2012). Revaluation is

required broadly every ﬁve years

(so the relevant revaluation date is

1 April 2022, for chargeable periods

beginning on or after 1 April 2022).

The ATED is levied each year in

accordance with bands in the

table below:

Building Blocks - Structuring European Property Investments

In principle, the ATED increases in line

with inﬂation, based on the consumer

prices index (CPI).

The ATED does not generally apply

where the residential property is

owned by an individual or via trusts.

There are also exemptions for

ownership of residential properties

for business purposes (including

where a property is acquired and

rented to third parties, is acquired

for development and resale, or is

acquired and held for use by business

employees). Consequently, there are

planning opportunities available

for ownership of such UK residential

property to mitigate ATED liabilities,

including ‘de-enveloping’ to remove

the residential property from existing

company ownership.

Property value Annual charge

More than £500,000 up to £1m £4,150

More than £1m up to £2m £8,450

More than £2m up to £5m £28,650

More than £5m up to £10m £67,050

More than £10m up to £20m £134,550

More than £20m £269,450

Chargeable amounts for 1 April 2023 to 31 March 2024

Investing in property in the United Kingdom

Tax on disposal of

UK property

Tax on sale of UK property by seller

‘trading’ in property

A UK resident individual will be

subject to income tax (currently

with tax rates up to a maximum

of 45%) on the proﬁt derived by

the individual from the sale of the

‘trading’ property, while a UK resident

corporation will be subject to UK

corporation tax (currently at 25% with

a tapering rate from 19% for small

businesses) on the proﬁt derived from

the trade.

A non-UK resident is subject to UK tax

when trading in property (whether

residential or commercial) under

legislation which took eect on 5

July 2016.

The legislation provides that income

and proﬁts of non-UK residents will

be subject to corporation tax or

income tax (as appropriate) where

the trade comprises trading in UK

land or developing UK land with a

view to disposing of it, regardless

of where the trade is carried on

and regardless of whether or not

the trade is carried on through a

permanent establishment in the UK

or elsewhere.

Tax on sale of UK property by non-

resident seller ‘investing’ in property

From 6 April 2019, the scope of non-

residents’ capital gains tax has been

extended so that all disposals of

investments in UK property interests

fall within corporation tax (currently

25% with a tapering rate from

19% for small businesses) for non-

resident companies or capital gains

tax (currently 20% for higher and

additional rate taxpayers, subject to

residential rates as set out below) for

non-resident individuals, even if the

taxpayer was not previously subject

to UK tax.

Both direct and indirect disposals

fall within the charge to tax. Indirect

disposals relate to those where gains

are made on certain ‘property rich’

entities which are ‘closely held’.

A ‘property rich’ vehicle is one that

ultimately derives at least 75% or

more of its gross asset value from UK

land. A ‘closely held’ interest is one

where the seller holds at least a 25%

Building Blocks - Structuring European Property Investments

interest in the entity being disposed

of at some point in the two years

preceding the disposal, subject to

the Collective Investment Vehicles

(CIV) rules detailed below.

For both direct and indirect disposals,

historic gains are protected and any

taxable gain is limited to the increase

in value arising from April 2019. This is

determined by either a market value

rebasing or an election to retain an

historical cost (unless it would give

rise to a loss).

Tax on sale of UK property by seller

‘investing’ in commercial property

through a CIV

CIVs include collective investment

schemes (CISs), alternative

investment funds (AIFs), UK real estate

investment trusts (REITs) and the

foreign equivalent of UK REITs.

From 6 April 2019, the default position

for non-resident CIVs is that they are

deemed to be companies for capital

gains purposes.

The default position can be

superseded by CIVs which are

‘property rich’ (ie where 75% of their

gross asset value derives from UK

land) by two possible elections:

the ‘transparency election’ or the

‘exemption election’.

Non-UK resident CIVs which are

‘transparent’ for tax purposes in

respect of income (most obviously a

Jersey Property Unit Trust (JPUT)) may

elect to be treated as a partnership

for tax purposes, thereby ensuring

that any capital gains are deemed

to accrue to investors in the CIV. The

transparent treatment will apply for

all investors in the fund, both UK and

non-resident.

Alternatively, certain non-UK resident

CIVs (namely CISs or the foreign

equivalent of UK REITs) that meet

extensive qualifying criteria (including

the requirement that the fund is

widely marketed or otherwise not

closely held) can elect to be treated

as companies and exempt from

corporation tax.

The exemption election covers direct

or indirect disposals so that the CIV

and any entities in which it has 40%

or more investment will not suer

tax on the proportion of any gains

attributable to the holding of the

CIV in the asset (with the investors

remaining liable to tax on their gains

on disposals of interests in the CIV).

Investing in property in the United Kingdom

Capital gains tax for UK residents

selling residential property

Capital gains (calculated as the

dierence between the price

received on sale of the property and

the price paid for the property and

any improvements) which arise to

UK resident individuals on the sale

of residential property will generally

be subject to a rate of 18% if the

individual is a basic rate taxpayer,

or 28% if they are a higher or

additional rate taxpayer. Exemption

from capital gains tax is available

where the residential property is

the individual’s principal place of

residence and no capital gains tax is

levied if the individual’s capital gains

for the year do not exceed

the annual exempt amount

(currently £6,000 and expected to

reduce to £3,000 from April 2024).

UK resident corporations selling

residential property will be subject to

UK corporation tax in respect of any

gain derived from the sale of

the property, with the gain

determined after taking account

of indexation allowance if the

property was held prior to

December 2017.

Property funds

The UK’s tax regime can also oer

beneﬁts for private and public

property funds and portfolio

companies where UK commercial

property investments can be

held in separate oshore special

purpose vehicles (SPVs) to oer the

ability to sell the SPV without SDLT

for a purchaser (although please

see above for a discussion on the

changes to the tax treatment

of CIVs).

The UK also oers a special tax

regime for REITs. Broadly, a REIT is

exempt from UK tax on capital gains

and rental income – despite the fact

that the company is incorporated

and tax resident in the UK. Instead,

distributions from the REIT to

shareholders are treated as if they

were payments of rental income and

generally subject to UK withholding

tax (currently 20%).

Recent changes, taking eect from

1 April 2022, have made REIT status

easier to qualify for - particularly

when funded by institutional

investors. Among other reforms,

REITs no longer have to have their

Building Blocks - Structuring European Property Investments

shares listed on a recognised stock

exchange if they are substantially

owned by institutional investors.

Further changes were introduced

from 1 April 2023, including relaxing

the requirement for a REIT to hold a

minimum of three properties where it

holds a single commercial property

worth £20m or more. Further changes

which will also beneﬁt institutional

investors are planned in the Finance

Bill 2024, for example the rule

requiring a REIT to be a non-close

company or only close because of

an institutional investor will be

amended to conﬁrm that it can be

satisﬁed by indirect ownership by

institutional investors.

Islamic ﬁnance and UK

real estate

This is a highly specialised area

where careful tax structuring is

required to achieve a ‘level playing

ﬁeld’ for ﬁnance arrangements

undertaken in a form which

is compliant with Shari’a law

principles as compared with more

conventional funding.

Examples of such structures include

the Ijara lease, under which rental

payments provide returns on

ﬁnance, and Sukuk Al-Ijara, suitable

for raising ﬁnance from a bond issue

to the markets.

Investing in property in the United Kingdom

Building Blocks - Structuring European Property Investments

Summary for commercial property

Acquisition of commercial property

France Germany United Kingdom

Typical structure

Acquiring property through French

corporate entity.

Acquiring property though non-

German corporate entity.

Acquiring property through non-UK

corporate entity.

Transaction tax on acquisition of

property

Registration duties – up to 7% of

property value.

RETT – 3.5% to 6.5%. SDLT – sliding scale up to 5% on

price above £250,000.

VAT on acquisition price

Applicable at the rate of 20% to

‘new’ buildings. Not applicable to

‘old’ buildings, unless the seller has

‘opted to tax’.

Applicable at the rate of 19% if seller

has ‘opted to tax’ the property

(unless ‘transfer of a going concern’

treatment applies).

Applicable at the rate of 20% if seller

has ‘opted to tax’ the property

(unless “transfer of a going concern”

treatment applies).

Transaction tax on acquisition of

property holding company

Registration duties – 5% of price

if predominant French real estate

company shares acquired.

3.5% to 6.5% only if 90% or more of

the shares/interests are legally or

economically acquired/uniﬁed by (a)

purchaser(s).

Stamp duty – 0.5% if shares are

in a UK incorporated company;

otherwise no stamp duty.

Acquisition of commercial property

France Germany United Kingdom

Typical structure

Acquiring property through French

corporate entity.

Acquiring property though non-

German corporate entity.

Acquiring property through non-UK

corporate entity.

Transaction tax on acquisition of

property

Registration duties – up to 7% of

property value.

RETT – 3.5% to 6.5%. SDLT – sliding scale up to 5% on

price above £250,000.

VAT on acquisition price

Applicable at the rate of 20% to

‘new’ buildings. Not applicable to

‘old’ buildings, unless the seller has

‘opted to tax’.

Applicable at the rate of 19% if seller

has ‘opted to tax’ the property

(unless ‘transfer of a going concern’

treatment applies).

Applicable at the rate of 20% if seller

has ‘opted to tax’ the property

(unless “transfer of a going concern”

treatment applies).

Transaction tax on acquisition of

property holding company

Registration duties – 5% of price

if predominant French real estate

company shares acquired.

3.5% to 6.5% only if 90% or more of

the shares/interests are legally or

economically acquired/uniﬁed by (a)

purchaser(s).

Stamp duty – 0.5% if shares are

in a UK incorporated company;

otherwise no stamp duty.

Summary

Building Blocks - Structuring European Property Investments

Summary for commercial property (continued)

Holding of commercial property

France Germany United Kingdom

Tax on rental income –

individuals

French individual residents – progressive

rates up to 45% and 17.2% social security and

ancillary taxes (eective tax rate (“ETR”) –

up to 66.2%).

Non-French resident individuals – tax at

a minimum of 30%, unless average rate

applicable to worldwide income under

French rules is lower. Exempt from CSG and

CRDS if aliated to a compulsory social

security system, other than the French one,

within an EEA country (still subject to 7.5%

solidarity levy).

Progressive income tax rate up

to 45% plus solidarity surcharge,

resulting in an aggregate maximum

tax rate of 47.475%.

Progressive income tax (“IT”) rates up

to 45%.

Tax on rental income –

companies

French corporates – standard tax rate of 25%.

Non-resident corporates – tax rate of 25%.

CIT of 15% plus solidarity surcharge,

resulting in an aggregate tax rate of

15.825% (no trade tax, assuming no

German permanent establishment).

Corporation tax (CT) of 25% (unless

small company rates apply) for

UK resident and non-UK resident

corporates.

VAT on rental income

20% if furnished premises or holder has

‘opted to tax’ (unfurnished premises subject

to 2.5% rental tax instead).

19% if holder has ‘opted to tax’. 20% if holder has ‘opted to tax’.

Annual real estate wealth tax

Applicable to individuals where net value of

French real estate assets exceeds €1.3m at

progressive rates up to 1.5% of net value of

French real estate assets.

Real estate tax (Grundsteuer) – tax

rate depends on both local settings

and characteristics of real estate.

Not applicable.

Summary

Holding of commercial property

France Germany United Kingdom

Tax on rental income –

individuals

French individual residents – progressive

rates up to 45% and 17.2% social security and

ancillary taxes (eective tax rate (“ETR”) –

up to 66.2%).

Non-French resident individuals – tax at

a minimum of 30%, unless average rate

applicable to worldwide income under

French rules is lower. Exempt from CSG and

CRDS if aliated to a compulsory social

security system, other than the French one,

within an EEA country (still subject to 7.5%

solidarity levy).

Progressive income tax rate up

to 45% plus solidarity surcharge,

resulting in an aggregate maximum

tax rate of 47.475%.

Progressive income tax (“IT”) rates up

to 45%.

Tax on rental income –

companies

French corporates – standard tax rate of 25%.

Non-resident corporates – tax rate of 25%.

CIT of 15% plus solidarity surcharge,

resulting in an aggregate tax rate of

15.825% (no trade tax, assuming no

German permanent establishment).

Corporation tax (CT) of 25% (unless

small company rates apply) for

UK resident and non-UK resident

corporates.

VAT on rental income

20% if furnished premises or holder has

‘opted to tax’ (unfurnished premises subject

to 2.5% rental tax instead).

19% if holder has ‘opted to tax’. 20% if holder has ‘opted to tax’.

Annual real estate wealth tax

Applicable to individuals where net value of

French real estate assets exceeds €1.3m at

progressive rates up to 1.5% of net value of

French real estate assets.

Real estate tax (Grundsteuer) – tax

rate depends on both local settings

and characteristics of real estate.

Not applicable.

Building Blocks - Structuring European Property Investments

Holding of commercial property

France Germany United Kingdom

Inheritance and gift tax

For individuals only – varying depending on

relationship between donor and beneﬁciary

– 5% to 60% (subject to exemptions under

any relevant treaty).

Assuming investment property

located in Germany has been

transferred on death or by way of

donation – 7% to 50% for individuals

and 30% to 50% for corporations;

precise tax rate depends on

individual circumstances.

Inheritance tax (“IHT”) at 40% on

death of individual – unless business

property relief or spouse exemption

is available.

Non-resident individuals only liable

to IHT on directly held UK commercial

property.

Other annual taxes

For companies carrying on professional

activities – Territorial Economic Contribution

– variable rates capped at 3% of added

value during the year.

For companies – annual tax of 3% of fair

market value of the property, although

exemption generally applies unless

company in tax haven or does not disclose

shareholders.

Certain ancillary taxes by local authorities.

Not applicable. Not applicable.

Summary for commercial property (continued)

Holding of commercial property

France Germany United Kingdom

Inheritance and gift tax

For individuals only – varying depending on

relationship between donor and beneﬁciary

– 5% to 60% (subject to exemptions under

any relevant treaty).

Assuming investment property

located in Germany has been

transferred on death or by way of

donation – 7% to 50% for individuals

and 30% to 50% for corporations;

precise tax rate depends on

individual circumstances.

Inheritance tax (“IHT”) at 40% on

death of individual – unless business

property relief or spouse exemption

is available.

Non-resident individuals only liable

to IHT on directly held UK commercial

property.

Other annual taxes

For companies carrying on professional

activities – Territorial Economic Contribution

– variable rates capped at 3% of added

value during the year.

For companies – annual tax of 3% of fair

market value of the property, although

exemption generally applies unless

company in tax haven or does not disclose

shareholders.

Certain ancillary taxes by local authorities.

Not applicable. Not applicable.

Summary

Building Blocks - Structuring European Property Investments

Summary for commercial property (continued)

Disposal of commercial property

France Germany United Kingdom

Tax on sale of property –

individuals

Capital gains tax (“CGT”) (19%) plus surtax

(up to 6%) and social charges and ancillary

taxes (ETR – c46.2%). Taxable gain reduced

for years of ownership after ﬁve years and

tax exempt where ownership is more than

22 years.

If property is held by individuals and sale

is taxable (holding period is less than

10 years) – tax up to 45% plus solidarity

surcharge, resulting in an aggregate

maximum tax rate of 47.475%.

If property is held by individual for

trading purposes – progressive income

tax rates up to 45%.

If property held as investment by UK

resident individual – 20% CGT (if higher

or additional rate taxpayer).

If property held as investment by non-

resident individual – subject to CGT from

April 2019 (currently 20% for higher and

additional rate taxpayers).

Tax on sale of shares (in

predominant property holding

company) – individuals

CGT (19%) plus surtax (up to 6%) and social

charges and ancillary taxes (ETR – c46.2%).

Taxable gain reduced for years of ownership

after ﬁve years and tax exempt where

ownership is more than 22 years.

If German resident individual holding

at least 1% of the shares – up to 45%

plus solidarity surcharge, resulting in an

aggregate maximum tax rate of 47.475% on

60% of the proﬁts.

If German resident individual holding

below 1% of the shares – 25% income tax

plus solidarity surcharge, resulting in an

aggregate maximum tax rate of 26.375%.

If non-German resident individual – no

German tax on capital gains from disposal

of shares in foreign Propco.

If UK resident individual selling shares

– 20% CGT (if higher or additional rate

taxpayer).

If non-UK resident individual selling

shares – subject to CGT if gain is

made on disposal of shares in oshore

‘property rich’ entities.

Summary

Disposal of commercial property

France Germany United Kingdom

Tax on sale of property –

individuals

Capital gains tax (“CGT”) (19%) plus surtax

(up to 6%) and social charges and ancillary

taxes (ETR – c46.2%). Taxable gain reduced

for years of ownership after ﬁve years and

tax exempt where ownership is more than

22 years.

If property is held by individuals and sale

is taxable (holding period is less than

10 years) – tax up to 45% plus solidarity

surcharge, resulting in an aggregate

maximum tax rate of 47.475%.

If property is held by individual for

trading purposes – progressive income

tax rates up to 45%.

If property held as investment by UK

resident individual – 20% CGT (if higher

or additional rate taxpayer).

If property held as investment by non-

resident individual – subject to CGT from

April 2019 (currently 20% for higher and

additional rate taxpayers).

Tax on sale of shares (in

predominant property holding

company) – individuals

CGT (19%) plus surtax (up to 6%) and social

charges and ancillary taxes (ETR – c46.2%).

Taxable gain reduced for years of ownership

after ﬁve years and tax exempt where

ownership is more than 22 years.

If German resident individual holding

at least 1% of the shares – up to 45%

plus solidarity surcharge, resulting in an

aggregate maximum tax rate of 47.475% on

60% of the proﬁts.

If German resident individual holding

below 1% of the shares – 25% income tax

plus solidarity surcharge, resulting in an

aggregate maximum tax rate of 26.375%.

If non-German resident individual – no

German tax on capital gains from disposal

of shares in foreign Propco.

If UK resident individual selling shares

– 20% CGT (if higher or additional rate

taxpayer).

If non-UK resident individual selling

shares – subject to CGT if gain is

made on disposal of shares in oshore

‘property rich’ entities.

Building Blocks - Structuring European Property Investments

Tax on sale of property –

companies

Corporate tax – a minimum rate of 25%

(unless overseas company can beneﬁt from

tax treaty).

The rate can increase to 25.83% (if taxable

income exceeds €763,000).

15% CIT plus solidarity surcharge, resulting

in an aggregate tax rate of 15.825%.

Furthermore, trade tax may occur

depending on the individual

circumstances (eg permanent

establishment in Germany).

If UK resident company selling property

– CT of 25% on gain.

If non-UK resident company holding

‘investment property’ – subject to CT of

25% on gain.

If non-UK resident company ‘trading’ in

property – CT of 25% on gain.

Tax on sale of shares (in

predominant property holding

company) – companies

Corporate tax – 25% (unless tax treaty

prevents French tax).

The rate can increase to 25.83% (if taxable

income exceeds €763,000).

If German resident company selling shares

– 0.75% CIT plus solidarity surcharge,

resulting in an aggregate tax rate of

approximately 0.8%.

For non-German resident company selling

shares – generally no German tax on

capital gain (subject to special Double Tax

Treaty regulations).

If UK resident company selling shares –

generally 25% CT on gain.

If non-UK resident company selling

shares – subject to CT of 25% if gain is

made on disposal of shares in oshore

‘property rich’ entities.

Summary for commercial property (continued)

Tax on sale of property –

companies

Corporate tax – a minimum rate of 25%

(unless overseas company can beneﬁt from

tax treaty).

The rate can increase to 25.83% (if taxable

income exceeds €763,000).

15% CIT plus solidarity surcharge, resulting

in an aggregate tax rate of 15.825%.

Furthermore, trade tax may occur

depending on the individual

circumstances (eg permanent

establishment in Germany).

If UK resident company selling property

– CT of 25% on gain.

If non-UK resident company holding

‘investment property’ – subject to CT of

25% on gain.

If non-UK resident company ‘trading’ in

property – CT of 25% on gain.

Tax on sale of shares (in

predominant property holding

company) – companies

Corporate tax – 25% (unless tax treaty

prevents French tax).

The rate can increase to 25.83% (if taxable

income exceeds €763,000).

If German resident company selling shares

– 0.75% CIT plus solidarity surcharge,

resulting in an aggregate tax rate of

approximately 0.8%.

For non-German resident company selling

shares – generally no German tax on

capital gain (subject to special Double Tax

Treaty regulations).

If UK resident company selling shares –

generally 25% CT on gain.

If non-UK resident company selling

shares – subject to CT of 25% if gain is

made on disposal of shares in oshore

‘property rich’ entities.

Summary

Building Blocks - Structuring European Property Investments

Summary for residential property

Acquisition of residential property

France Germany United Kingdom

Typical structure

Acquiring property through French SCI. Acquiring property through oshore

Propco.

Acquiring property by individuals

directly or non-UK corporate entity.

Transaction tax on acquisition

of property

Registration duties – up to 7% of property

value.

RETT – 3.5% to 6.5%. SDLT – variable rates depending

on acquirer. Can be up to 12% for

individuals where value exceeds

£1.5m and 15% for companies where

value exceeds £500,000.

Higher rates (adding additional 3%

to standard SDLT rates) if purchaser

already owns a residential property

or is a body corporate. Additional 2%

surcharge if purchaser is a non-UK

tax resident.

VAT on acquisition price

None. Depends on whether seller ‘opts

to tax’.

None.

Transaction tax on acquisition

of property holding company

Registration duties – 5% of price applicable

if predominant French real estate company

shares acquired.

RETT – 3.5% to 6.5% only if 90% or

more of the shares/interests are

legally or economically acquired/

uniﬁed by (a) purchaser(s).

Stamp duty – 0.5% if shares are in a

UK incorporated company; otherwise

no stamp duty.

Acquisition of residential property

France Germany United Kingdom

Typical structure

Acquiring property through French SCI. Acquiring property through oshore

Propco.

Acquiring property by individuals

directly or non-UK corporate entity.

Transaction tax on acquisition

of property

Registration duties – up to 7% of property

value.

RETT – 3.5% to 6.5%. SDLT – variable rates depending

on acquirer. Can be up to 12% for

individuals where value exceeds

£1.5m and 15% for companies where

value exceeds £500,000.

Higher rates (adding additional 3%

to standard SDLT rates) if purchaser

already owns a residential property

or is a body corporate. Additional 2%

surcharge if purchaser is a non-UK

tax resident.

VAT on acquisition price

None. Depends on whether seller ‘opts

to tax’.

None.

Transaction tax on acquisition

of property holding company

Registration duties – 5% of price applicable

if predominant French real estate company

shares acquired.

RETT – 3.5% to 6.5% only if 90% or

more of the shares/interests are

legally or economically acquired/

uniﬁed by (a) purchaser(s).

Stamp duty – 0.5% if shares are in a

UK incorporated company; otherwise

no stamp duty.

Summary

Building Blocks - Structuring European Property Investments

Summary for residential property (continued)

Holding of residential property

France Germany United Kingdom

Tax on rental income –

individuals

French individual residents – progressive

rates up to 45% and 17.2% social security

(ETR – up to 66.2%).

Non-French resident individuals – tax at

a minimum of 30%, unless average rate

applicable to worldwide income under

French rules is lower. Exempt from CSG and

CRDS if aliated to a compulsory social

security system, other than the French one,

within an EEA country (still subject to 7.5%

solidarity levy).

Progressive income tax rate up

to 45% plus solidarity surcharge,

resulting in an aggregate maximum

tax rate of 47.475%.

Progressive income tax rates

up to 45%.

Tax on rental income –

companies

French corporates – standard tax rate of 25%.

Non-resident corporates – tax rate of 25%.

German corporates – standard tax

rate of 15% plus solidarity surcharge,

resulting in an aggregate tax rate

of 15.825%. Furthermore, trade tax

of approximately 15% may occur,

depending on the individual

circumstances.

Non-resident corporates – CIT of 15%

plus solidarity surcharge, resulting

in an aggregate tax rate of 15.825%

(assuming no German permanent

establishment).

UK resident and non-resident

corporates – CT of 25%.

VAT on rental income

None. Depends on whether landlord ‘opts

to tax’.

None.

Annual real estate wealth tax

Applicable to individuals where net value of

French real estate assets exceeds €1.3m at

progressive rates up to 1.5% of net value of

French real estate assets.

Real estate tax (Grundsteuer) – tax

rate depends on both local settings

and characteristics of real estate.

Not applicable.

Summary

Holding of residential property

France Germany United Kingdom

Tax on rental income –

individuals

French individual residents – progressive

rates up to 45% and 17.2% social security

(ETR – up to 66.2%).

Non-French resident individuals – tax at

a minimum of 30%, unless average rate

applicable to worldwide income under

French rules is lower. Exempt from CSG and

CRDS if aliated to a compulsory social

security system, other than the French one,

within an EEA country (still subject to 7.5%

solidarity levy).

Progressive income tax rate up

to 45% plus solidarity surcharge,

resulting in an aggregate maximum

tax rate of 47.475%.

Progressive income tax rates

up to 45%.

Tax on rental income –

companies

French corporates – standard tax rate of 25%.

Non-resident corporates – tax rate of 25%.

German corporates – standard tax

rate of 15% plus solidarity surcharge,

resulting in an aggregate tax rate

of 15.825%. Furthermore, trade tax

of approximately 15% may occur,

depending on the individual

circumstances.

Non-resident corporates – CIT of 15%

plus solidarity surcharge, resulting

in an aggregate tax rate of 15.825%

(assuming no German permanent

establishment).

UK resident and non-resident

corporates – CT of 25%.

VAT on rental income

None. Depends on whether landlord ‘opts

to tax’.

None.

Annual real estate wealth tax

Applicable to individuals where net value of

French real estate assets exceeds €1.3m at

progressive rates up to 1.5% of net value of

French real estate assets.

Real estate tax (Grundsteuer) – tax

rate depends on both local settings

and characteristics of real estate.

Not applicable.

Building Blocks - Structuring European Property Investments

Inheritance and gift tax

For individuals only – varying depending on

relationship between donor and beneﬁciary

– 5% to 60% (subject to exemptions under

any relevant treaty).

Assuming investment property

located in Germany has been

transferred on death or by way of

donation – 7% to 50% for individuals

and 30% to 50% for corporations;

precise tax rate depends on

individual circumstances.

IHT at 40% on death of individual,

shareholder of non-UK company or

settlor who is also a beneﬁciary of a

non-UK resident trust in the absence

of any available exemptions.

Additional IHT liabilities for non-UK

resident trusts holding UK residential

property interests directly or via non-

UK entities.

Other annual taxes

For companies – annual tax of 3% of fair

market value of the property, although

exemption generally applies unless

company in tax haven or does not disclose

shareholders.

Certain ancillary taxes by local authorities.

Not applicable. For corporates and similar vehicles

only – ATED is variable annual levy

depending on market value of

residence; ranging from £4,150 per

annum for properties over £500,000

to £269,450 per annum for properties

valued over £20m.

Summary for residential property (continued)

Inheritance and gift tax

For individuals only – varying depending on

relationship between donor and beneﬁciary

– 5% to 60% (subject to exemptions under

any relevant treaty).

Assuming investment property

located in Germany has been

transferred on death or by way of

donation – 7% to 50% for individuals

and 30% to 50% for corporations;

precise tax rate depends on

individual circumstances.

IHT at 40% on death of individual,

shareholder of non-UK company or

settlor who is also a beneﬁciary of a

non-UK resident trust in the absence

of any available exemptions.

Additional IHT liabilities for non-UK

resident trusts holding UK residential

property interests directly or via non-

UK entities.

Other annual taxes

For companies – annual tax of 3% of fair

market value of the property, although

exemption generally applies unless

company in tax haven or does not disclose

shareholders.

Certain ancillary taxes by local authorities.

Not applicable. For corporates and similar vehicles

only – ATED is variable annual levy

depending on market value of

residence; ranging from £4,150 per

annum for properties over £500,000

to £269,450 per annum for properties

valued over £20m.

Summary

Building Blocks - Structuring European Property Investments

Summary for residential property (continued)

Disposal of residential property

France Germany United Kingdom

Tax on sale of property –

individuals

Capital gains tax (19%) plus surtax (up to 6%)

and social charges and ancillary taxes (ETR

– c46.2%). Taxable gain reduced for years

of ownership after six years and tax exempt

where ownership is more than 22 years.

If property is held by individuals and sale

is taxable (holding period is less than

10 years) – tax up to 45% plus solidarity

surcharge, resulting in an aggregate

maximum tax rate of 47.475%.

If property is held for trading purposes

– progressive income tax rates up to

45%.

If property held as investment by UK

resident individual – 28% CGT (if higher

or additional rate taxpayer).

If property held as investment by

non-resident individual – CGT of 28%

on any gain arising on property above

value of property on 1 April 2015 (or

acquisition price if acquired after that

date).

Tax on sale of shares (in

predominant property holding

company) – individuals

Capital gains tax (19%) plus surtax (up to 6%)

and social charges and ancillary taxes (ETR

– c46.2%). Taxable gain reduced for years

of ownership after six years and tax exempt

where ownership is more than 22 years.

If German resident individual holding

at least 1% of the shares – up to 45%

plus solidarity surcharge, resulting in an

aggregate maximum tax rate of 47.475%

on 60% of the proﬁts.

If German resident individual holding

below 1% of the shares – 25% income tax

plus solidarity surcharge, resulting in an

aggregate maximum tax rate of 26.375%.

If non-German resident individual –

no German tax on capital gains from

disposal of shares in foreign Propco.

If UK resident individual – 28% CGT (if

higher or additional rate taxpayer).

If non-UK resident individual – subject

to CGT if gain is made on disposal

of shares in oshore ‘property rich’

entities.

Summary

Disposal of residential property

France Germany United Kingdom

Tax on sale of property –

individuals

Capital gains tax (19%) plus surtax (up to 6%)

and social charges and ancillary taxes (ETR

– c46.2%). Taxable gain reduced for years

of ownership after six years and tax exempt

where ownership is more than 22 years.

If property is held by individuals and sale

is taxable (holding period is less than

10 years) – tax up to 45% plus solidarity

surcharge, resulting in an aggregate

maximum tax rate of 47.475%.

If property is held for trading purposes

– progressive income tax rates up to

45%.

If property held as investment by UK

resident individual – 28% CGT (if higher

or additional rate taxpayer).

If property held as investment by

non-resident individual – CGT of 28%

on any gain arising on property above

value of property on 1 April 2015 (or

acquisition price if acquired after that

date).

Tax on sale of shares (in

predominant property holding

company) – individuals

Capital gains tax (19%) plus surtax (up to 6%)

and social charges and ancillary taxes (ETR

– c46.2%). Taxable gain reduced for years

of ownership after six years and tax exempt

where ownership is more than 22 years.

If German resident individual holding

at least 1% of the shares – up to 45%

plus solidarity surcharge, resulting in an

aggregate maximum tax rate of 47.475%

on 60% of the proﬁts.

If German resident individual holding

below 1% of the shares – 25% income tax

plus solidarity surcharge, resulting in an

aggregate maximum tax rate of 26.375%.

If non-German resident individual –

no German tax on capital gains from

disposal of shares in foreign Propco.

If UK resident individual – 28% CGT (if

higher or additional rate taxpayer).

If non-UK resident individual – subject

to CGT if gain is made on disposal

of shares in oshore ‘property rich’

entities.

Building Blocks - Structuring European Property Investments

Tax on sale of property –

companies

Corporate tax – 25% (unless overseas

company can beneﬁt from tax treaty).

The rate can increase to 25.83%

(if corporate income tax exceeds €763,000).

15% CIT plus solidarity surcharge, resulting

in an aggregate tax rate of 15.825%.

Furthermore, trade tax may occur,

depending on the individual

circumstances (eg permanent

establishment in Germany).

If UK resident – 25% CT on gain.

If non-UK resident and seller ‘trading’

in property – UK CT of 25% on gain.

If non-UK resident company holding

‘investment property’ – 20% CGT

applicable to gain arising on property

above value of property on 1 April 2015

(or acquisition date if later).

Tax on sale of shares (in

predominant property holding

company) – companies

Corporate tax – 25% (unless tax treaty

prevents French tax).

The rate can increase to 25.83%

(if corporate income tax exceeds €763,000).

If German resident company selling

shares – 0.75% CIT plus solidarity

surcharge, resulting in an aggregate tax

rate of approximately 0.8%.

For non-German resident company

selling shares – generally no German tax

on capital gain (subject to special Double

Tax Treaty regulations).

If UK resident seller – 25% CT on gain.

If non-UK resident seller company –

subject to CT of 25% if gain is made on

disposal of shares in oshore ‘property

rich’ entities.

Summary for residential property (continued)

Tax on sale of property –

companies

Corporate tax – 25% (unless overseas

company can beneﬁt from tax treaty).

The rate can increase to 25.83%

(if corporate income tax exceeds €763,000).

15% CIT plus solidarity surcharge, resulting

in an aggregate tax rate of 15.825%.

Furthermore, trade tax may occur,

depending on the individual

circumstances (eg permanent

establishment in Germany).

If UK resident – 25% CT on gain.

If non-UK resident and seller ‘trading’

in property – UK CT of 25% on gain.

If non-UK resident company holding

‘investment property’ – 20% CGT

applicable to gain arising on property

above value of property on 1 April 2015

(or acquisition date if later).

Tax on sale of shares (in

predominant property holding

company) – companies

Corporate tax – 25% (unless tax treaty

prevents French tax).

The rate can increase to 25.83%

(if corporate income tax exceeds €763,000).

If German resident company selling

shares – 0.75% CIT plus solidarity

surcharge, resulting in an aggregate tax

rate of approximately 0.8%.

For non-German resident company

selling shares – generally no German tax

on capital gain (subject to special Double

Tax Treaty regulations).

If UK resident seller – 25% CT on gain.

If non-UK resident seller company –

subject to CT of 25% if gain is made on

disposal of shares in oshore ‘property

rich’ entities.

Summary

Building Blocks - Structuring European Property Investments

Our international team

Christophe Flaicher

Partner

+33 1 72 74 03 17

c.ﬂaicher@taylorwessing.com

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Partner

+44 20 7300 4979

l.wilson@taylorwessing.com

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Partner

+49 211 8387-269

[email protected]

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Partner

+44 20 7300 4985

j.ross@taylorwessing.com

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Partner

+44 20 7300 4916

g.samuel-gibbon@taylorwessing.com

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Partner

+49 69 97130-261

[email protected]

Our international team

Elnaz Mehrkhah

Senior Associate

+49 69 97130-187

e.mehrkhah@taylorwessing.com

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Counsel

+33 1 72 74 03 63

g.chat[email protected]

Peter Jackson

Consultant

+44 20 7300 4721

p.jackson@taylorwessing.com

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Senior Associate

+44 20 7300 7109

h.revington@taylorwessing.com

Philip Weiten

Partner

+49 211 8387-259

p.weiten@taylorwessing.com

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Deeply embedded within our sectors, we work closely

together with our clients to crack complex problems,

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Together we challenge expectation and create

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About us

Building Blocks - Structuring European Proprty Investments

Taylor Wessing is a global law ﬁrm that serves the

world’s most innovative people and businesses.

Deeply embedded within our sectors, we work closely

together with our clients to crack complex problems,

enabling ideas and aspirations to thrive.

Together we challenge expectation and create

extraordinary results.

By shaping the conversation in our sectors, we enable our clients to

unlock growth, protect innovation and accelerate ambition.



Automotive & Mobility



Chemicals



Financial Institutions & Insurance



Logistics & Transport



Public Services & Education



Aerospace & Defence



Business & Professional Services



Consumer & Retail



Hotels, Hospitality & Leisure



Manufacturing & Industrials

Technology, Media &

Communications

Private Wealth

Real Estate, Infrastructure

& Energy

Life Sciences & Healthcare

Challenge expectation, together

With our team based across Europe, the Middle East, US and Asia, we work

with clients wherever they want to do business. We blend the best of local

commercial, industry and cultural knowledge with international experience to

provide proactive, integrated solutions across the full range of service areas.

2000+ people

1100+ lawyers

300+ partners

29 oces

17 jurisdictions

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