Affluent Indians who used off-shore companies to buy apartments and mansions in the UK are coming under the scanner of the Enforcement Directorate (ED), Economic Times reported.
Under the liberalised remittance scheme, or LRS, resident individuals are permitted to send up to $250,000 in a year to directly purchase properties abroad, however, buying the stocks of foreign companies which mainly hold properties is a breach of foreign exchange regulations.
Despite this, certain well-off Indian families, perhaps assuming that such deals would not come to light, have bought shares of companies owning properties to evade stamp duty, capital gains, and even inheritance tax.
Notably, the British government has plugged the tax loopholes, there are certain tax advantages of controlling properties through companies which remain. The identities of the owners behind the companies are now surfacing more and more due to an interplay of various factors: on one side ED is enquiring about the actual assets underlying the overseas stock investments declared by the resident Indians in their income tax (I-T) return and at the same time, UK has started mandating the disclosure of beneficial ownership (BO) details since 2023 of companies which possess properties.
ED notices
Over the last one month at least four individuals have received notices from ED for owning shares of companies which in turn own properties. These companies are either based in the UK or in other jurisdictions, ET wrote
“Overseas Investment in a foreign company which only owns a property and doesn’t engage in any other bonafide business is not permitted. While this is encouraged in markets like the UK where this is a typical structure such transactions would contravene current regulatory regime in India. Also, it is generally understood that the KYC process for registration as per the Land Registration (Amendment) Rules 2022 is easier for UK companies than individuals,” wrote ET quoting Moin Ladha, partner at the law firm Khaitan & Co.
It is believed that the UK has shared the BOs of such property owning firms with India since foreign corporates owning properties are mandated to register themselves with the UK registry.
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