Today's budget announcement contains a sting in the tail for investors in UK residential property.

The Chancellor has slapped a massive increase on Stamp Duty Land Tax (SDLT) increasing it to 15% when residential property worth £500,000 or more is purchased in the name of a company. Previously, the rate payable was 4% for residential properties worth over £500,000 and up to £1m and 5% for residential properties worth over £1m and up to £2m.

But he hasn't stopped there. The Chancellor has also extended the Annual Tax on Enveloped Dwellings (ATED) regime so that with effect from 2015 all residential properties worth more than £1m owned by companies will be subject to both ATED and Capital Gains Tax on Enveloped Dwellings (CGTED). In 2016, he will cast his net even wider and all residential properties worth more than £500,000 owned by companies will be subject to ATED and CGTED.

It is important to remember that these changes only apply to residential property in the UK and there are a number of exemptions from the ATED / CGTED regime, including:

  • Properties held by a company in its capacity as trustee of a settlement
  • Properties acquired in the course of a property development business
  • Properties let out as part of a property rental business where let to third parties on a commercial basis (in most cases this will exempt properties acquired as "buy-to-lets")

Additionally, the UK government is also still consulting on how best to introduce the capital gains tax on future gains made by non residents disposing of UK property and it is proposed that this new tax will be introduced in April 2015.

So where you already own UK residential property in an offshore company, you have three options available to you and plenty of time to think about them:

  1. Do nothing;
  2. De-envelope the property;
  3. Or consider restructuring.

In taking no action, and leaving the property in the offshore company, it will mean that you are unlikely to be exposed to UK inheritance tax (IHT) and will face no additional SDLT, but you will in the future be liable to ATED and CGTED on the property.

The process of de-enveloping involves transferring the property out of the company into your personal ownership. In doing this, there would be no ATED or CGTED going forward, but on the death of the individual owner, you would pay IHT at the rate of 40% of the value of your UK estate (which would include at the very least the Property) over the nil rate band.

The last (but not least) option is to consider holding the Property directly in an offshore trust. That way the Property can be held by trustees and this option would mean that there is unlikely to be any ATED or CGTED. IHT will remain a consideration. 

Any action (or indeed inaction) does need careful consideration and as well as needing legal advice will also require tax advice.