New measures
Previously announced measures

In a departure from recent UK budgets, the chancellor announced relatively few new measures in the 2016 Budget which specifically target wealthy international individuals and their families, or their wealth-holding structures. Nevertheless, this update highlights a number of the more significant measures announced that will be relevant to such individuals, some of which may be beneficial and others less so.

New measures

Capital gains tax rate reduction
One beneficial measure announced – at least for many UK resident individuals – is an 8% cut in the rate of capital gains tax with effect from April 6 2016. The rate has dropped from 28% to 20% for higher-rate taxpayers and from 18% to 10% for those paying the basic rate of tax. However, the impact of this rate cut will be reduced by the fact that it will not apply to disposals of residential property or carried interest.

Thus, the rate change will have no impact on non-UK residents, who are liable to capital gains tax only on disposals of UK residential property. They will continue to be taxed at existing rates on any gains on disposals of UK residential property under the provisions of either non-resident capital gains tax or annual tax on enveloped dwellings-related capital gains tax, as applicable.

Where non-resident companies are liable to non-resident capital gains tax on a disposal of property, this will be payable at the prevailing rate of UK corporation tax. This is currently 20%, but is due to decrease gradually over the next few years – it will reduce to 17% with effect from April 1 2020.

Stamp duty land tax – reform of charging provisions for non-residential property
Under the pre-budget rules, stamp duty land tax on acquisitions of non-residential property was paid on a 'slab' system, at a single percentage of the acquisition cost depending on the rate band within which the property fell. This used to be the case also for residential property before the rules were changed in December 2014. For properties valued over £500,000, the rate of stamp duty land tax was 4%.

Under the new rules – with effect from March 17 2016 – stamp duty land tax will be charged at different rates on the portion of the purchase price that falls within each of the new bands. The new rates and thresholds for freehold purchases and lease premiums are set out in the table below.

Transaction value band


£0 to £150,000


£150,001 to £250,000


Over £250,000


New rates and thresholds for rent paid under a lease are also being introduced, as set out in the table below.

Net present value of rent


£0 to £150,000


£150,001 to £5 million


Over £5 million


Where contracts were exchanged before March 17 2016, but the transaction was not completed before that date, purchasers will have a choice as to whether the old or new rates should apply.

The new rules will not apply in Scotland, as stamp duty land tax was devolved with effect from April 1 2015 and has been replaced by the land and buildings transaction tax. The new measure will apply in Wales only until April 1 2018, when stamp duty land tax will be devolved to Wales.

As a result of the changes in the rules, acquisitions of non­-residential property worth less than £1.05 million will pay the same or less in stamp duty land tax than would have been the case under the previous rules. For leasehold rent transactions, those with a net present value of up to £5 million will pay the same in stamp duty land tax as under the old rules.

Clearly, the differential in the stamp duty land tax rate payable under the new rules compared to the old rules will increase significantly for higher-value properties. For example, for an acquisition of non-­residential property valued at £10 million, under the previous rates, stamp duty land tax would have been £400,000. Under the new rules, the tax payable would be £489,500.

Nevertheless, for anyone considering investing in higher-value non-residential property, the stamp duty land tax rates will continue to be significantly lower than for residential property of an equivalent value. For non-UK resident or domiciled investors, there may be other potential tax advantages to investing in non-residential UK property.

However, where non-resident investors may be or become involved in trading in or developing UK property through offshore vehicles, they should be aware of new rules being introduced in the Finance Bill 2016 to ensure that profits on such activities are taxed in the same way, whether the entity carrying them out is based in the United Kingdom or offshore.

Previously announced measures

Higher rates of stamp duty land tax on purchases of additional residential properties
At the 2015 Autumn Statement, the chancellor announced that, with effect from April 1 2016, an additional 3% rate of stamp duty land tax would apply to acquisitions of additional residential properties, such as second homes and buy-to-let properties. A consultation on the proposed new measure was published on December 28 2015. A summary of responses to the consultation was published alongside the budget, together with draft legislation. This included a number of amendments to the original proposals.

As originally announced, the additional stamp duty land tax rate will not apply to an acquisition of a main residence to replace a previous main residence, even where the owner has another property that is not being sold. However, the consultation proposed that if an individual sold a main residence, he or she would have an 18-month period in which to replace it without incurring the additional rate on a subsequent purchase. If, on the other hand, an individual purchased a new main residence without disposing of his or her previous one, the additional rate of stamp duty land tax would be payable, but a refund could be claimed if the original property were sold within 18 months. Taking into account the responses to the consultation, the government has extended this period to 36 months in either situation.

The consultation also envisaged an exemption from the additional rate for 'large-scale investors'. The intention was that this would apply either to investors with a portfolio of 15 or more residential properties (a 'portfolio test') or to a purchaser that buys a minimum number of residential properties in one transaction (a 'bulk purchase test'). Following consultation, the government has taken account of responses and noted other incentives for investors in the rental market and existing flexibility within the stamp duty land tax system, and has decided to apply the additional rate to all purchasers without an exemption for significant investors.

Other changes to the original proposals include a provision whereby couples who have separated in circumstances where this is likely to be permanent will not be treated as a single unit for the purposes of the new measure. In addition, a share of 50% or less in a property inherited within 36 months before a purchase of residential property will not be considered as an additional property for the purposes of applying the additional rate. This is intended to provide flexibility for purchasers who may find it difficult to dispose quickly of a share in such a property.

Deemed domicile rules for offshore trusts and inheritance tax on UK residential property held in offshore vehicles
While the measures announced are not insignificant, details are awaited of the measures of principal interest to non-domiciled individuals. These include the new rules for taxation of the pre­-existing offshore trusts of non-UK domiciled individuals who become deemed domiciled after being resident in the United Kingdom for 15 of the past 20 tax years under the new regime taking effect from April 6 2017. They also include the proposal for inheritance tax to apply to UK residential property held by non-UK domiciliaries through offshore companies and other vehicles. Both measures are also due to take effect from April 6 2017.

The budget did confirm that non-domiciliaries who become deemed domiciled in the United Kingdom under the new rules in April 2017 will be able to treat the cost base of their non-UK based assets as being the market value of that asset on April 6 2017. Accordingly, if such an individual disposes of such assets after April 6 2017, only the increase in value after this date, if any, will be taxed on the arising basis. It is unclear whether the proposed rebasing of assets will be a one-off to April 6 2017 or whether individuals who become deemed domiciled at a later date will be able to rebase their assets to that date. However, the wording suggests that the former may be the case.

The budget paper also indicated that individuals who expect to become deemed UK domiciled under the 15-out-of-20-year rule will be subject to transitional provisions with regard to offshore funds to provide certainty on how amounts remitted to the United Kingdom will be taxed. Further details are awaited as to the nature and scope of such provisions. With regard to the proposal for inheritance tax to apply to UK residential property held by non-UK domiciliaries through offshore companies and other vehicles, the budget repeated the government's intention to publish a consultation. However, no indication was given as to when this may be expected.

It has been confirmed that all of the above measures will be legislated in the Finance Bill 2017.

For further information on this topic please contact Catharine Bell, Nick Jacob, Anthony Thompson or Daniel Ugur at Gowling WLG by telephone (+44 370 903 1000) or email ([email protected], [email protected], [email protected] or [email protected]). The Gowling WLG website can be accessed at