We are all, by now, familiar with the current UK Government’s stance on what it sees as “morally repugnant” tax avoidance and its stated intention to legislate “swiftly, without notice and retrospectively” if need be to counter this. In particular, the Government is focusing its attention on high value UK residential property. The Government has published its proposals and we await the draft legislation.
If you are considering purchasing a high value UK residential property through a company, offshore trust or other investment vehicle, you should seek immediate advice.
The current position
In March this year the UK Government announced proposals designed to discourage the “enveloping” of high value UK residential property (in other words, the ownership of such property through “nonnatural persons”).
The announcements, which were made in the 2012 Budget, unveiled a three-pronged attack on the ownership of UK residential property through corporate entities, the first of which (listed below) is already in force:
- An increased 15% rate of Stamp Duty Land Tax on the acquisition of UK residential property by non-natural persons, where consideration is more than £2m.
- An annual charge on residential property worth more than £2m where that property is held by a nonnatural person.
- A new capital gains tax (“CGT”) charge on gains arising on disposals by non-UK resident non-natural persons of residential properties exceeding £2m (such charge also to apply to the disposal of shares or other interests in the envelope by the non-natural person).
Boodle Hatfield have produced a briefing "Consultation on high value residential property" which provides further details on the proposals, copies of which are available upon request.
Timeframe for change
As part of a “summer of consultations”, the Government published its paper “Ensuring the fair taxation of residential property transactions” in June this year, with an invitation to submit comments by 23 August. We have submitted a response raising what we consider to be the key issues.
Given the current uncertainties as to how the annual charge and CGT provisions will operate and the discussion and concerns the consultation has generated amongst practitioners, the draft legislation, which is expected to be published later this year, is eagerly awaited. There has been speculation that the introduction of the CGT charge may be pushed back or even abandoned, given the complexities of its interaction with the existing anti-avoidance rules for gains made by non-UK resident companies and trusts, but the latest word is that it is going ahead.
What steps to take now?
Until the publication of the draft legislation, the only real preparation that can be done is: (1) identify any structures or holdings that are likely to be affected by the new proposals and review their use; (2) consider the practical implications of the proposals (as they currently stand) for such structures/entities; and (3) prepare to take advice as and when the draft legislation is published, with a view to assessing the value or otherwise of “de-enveloping” a property and the means of implementing this.
If you are considering purchasing a high value residential property through a company, offshore trust or other investment vehicle, you should seek immediate advice.