UK Budget 2012: new taxes on high value residential property The following new tax charges for UK residential property were announced in the 2012 Budget last month: An SDLT rate increase on £2m+ residential properties, from 5% to 15% if the purchaser is a “non-natural person,” otherwise the increase is to 7%. A new annual tax charge of up to 0.75% of the property ‘s value from April 2013 if the property is held by a “non-natural person” Sales by offshore non-natural persons are to be brought within the scope of Capital Gains Tax (“CGT”)from April 2013.SDLT rate increases The new 15% SDLT rate applies where the purchaser, or one of the joint purchasers, is a „non-natural person? i.e. a company, a partnership whose members include a company, or a collective investment scheme (including a unit trust). No avoidance motive is required and the charge will apply whether the non-natural person is UK or foreign based. Certain companies are exempt from the 15% charge, namely bona fide property development companies who have been carrying on business for at least two years and corporate trustees. Where the purchaser of a £2m + property is not (or does not include) a „non natural person?, for example purchases by private individuals, the new SDLT rate is 7%. These new 15% and 7% SDLT rates apply to purchases on or after 21 and 22 March 2012 respectively unless contracts were exchanged prior to 21 March2012.
Annual charges for companies
The Government will consult on the introduction of an annual tax charge on £2m+ residential property owned by non-natural persons (see above) with the aim of introducing such a charge from April 2013. In the current proposal, the annual charge ranges between 0.35% and 0.75% of the property’s market value per annum as follows. Proposed annual charge Property value£2m – £5m £5m – £10m £10m – £20m £20m +
£15,000 £35,000 £70,000 £140,000
CGT on disposals
The Government has also announced that it will extend the CGT regime to gains on disposal of UK residential property (as well as shares or interests in such property) by non-UK resident, non-natural persons, for example offshore companies. This will take effect from April 2013 following consultation on the details.
General Anti Avoidance Rule (GAAR)
The Government will consult on the introduction of a GAAR to tackle artificial and abusive tax avoidance schemes, with a view to legislating in the 2013 Finance Bill. It is therefore imperative to ensure that any planning for the above new tax charges is implemented before April 2013, when the GAAR is expected to come into force.
The new punitive 15% SDLT entry charge, holding charge (in the form of the annual tax charge) and CGT exit charge all mean that UK residential property is now subject to a more adverse UK tax regime, especially if owed by a non-natural person, such as a company. Such holding structures should be carefully reviewed and if caught by the above new charges, action to put the property into a new holding structure that avoids these new tax charges (and preserves the IHT benefits of an offshore company) should be taken well before next April 2013.We can advise anyone who owns or intends to purchase such property on how to avoid these new tax charges and how to preserve the pre-2012 Budget CGT and inheritance tax (and anonymity) benefits that applied to non-resident and non-domiciled individuals owning property via an offshore company.
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