UK: Consultation Published - Taxation Of Residential Property In The UK

Last Updated: 11 June 2012
Article by Michael Morris and Richard Lloyd

Following the measures announced in the 2012 budget, The UK Government has now published further details of their proposals for the taxation of residential property transactions.

The budget announcement in March saw the introduction of new Stamp Duty Land Tax (SDLT) thresholds of 7% for individuals and 15% for 'non-natural persons' buying residential property worth over £2 million. The Chancellor also announced a consultation on the introduction of an annual property tax on residential properties worth £2m or more that are owned by companies and also proposed the introduction of capital gains tax on residential property owned by overseas companies. Until now, information about these proposals has been sketchy.

With the publication of the Consultation Paper we now know that the proposed capital gains and annual tax will apply only to residential properties worth more than £2 million. These changes will come into effect in April 2013.

Annual Charge

The annual charge will depend on the value of the property, and the proposed levy is as follows:

Property Value

Annual Charge

2012-2013

£2m to £5m

£15,000

 

£5m TO £10m

£35,000

 

£10m to £20m

£70,000

 

£20m +

£140,000

 

  • It is intended that the annual charge will rise each year in line with the Consumer Prices Index (CPI)
  • The charge will be calculated on the base of the market value of the property in April 2012, or if later, the date of purchase of the property. Properties will need to be revalued in five years time.
  • The annual charge will apply to 'non natural persons' but not to trusts.

Capital Gains Tax (CGT)

CGT will be payable:

  • on the sale of property by non-resident companies. The Government has proposed that this charge will also apply to offshore trusts.
  • not only on the sale of residential property, but also on the disposal of assets that represent directly or indirectly relevant residential property i.e. CGT will also be payable on the sale of shares in a property owning company.
  • on all gains from the property and not just gains that have arisen since the introduction of the tax.
  • on commercially let residential property (ie including buy-to-let property).

The rate of tax chargeable will be announced by the Chancellor in the 2013 Budget. The changes proposed by the Budget and the Consultation Paper are significant and will (together with the increased SDLT charge) have a significant impact on structuring acquisitions of high value UK residential property.

What to do next?

It is important to remember that tax is often not the sole reason for using an offshore structure, whether it be an offshore company, trust or other wrapper. The Government has acknowledged that anonymity, inheritance tax and compliance with the law of foreign jurisdictions also play a significant role in determining when to use an offshore structure.

Each structure will need to be reviewed on an individual basis to determine the most efficient structure for that particular client. There are many factors that will need consideration in determining what structure to consider and whether to use a structure at all.

  • If you already own high value residential property then you will need to review the structure that currently exists and determine whether it remains appropriate for you or your client.
  • If you are purchasing high value residential property in the UK (worth over £2 million) then it is important that you take advice on the optimum structure for you or your client.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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