The rumours that the Government would crack down on the supposedly tax saving ‘trick’ of purchasing an expensive residential property through a company have finally been substantiated.
The media have made a great play of how buying a house through a company is a way to avoid Stamp Duty Land Tax (SDLT), but actually the use of a company was generally part of wider planning for UK resident non domiciliaries (non doms) to ensure privacy and to cope with the inheritance tax that would be payable in the event of an untimely death.
Pressure mounted, and the newspapers have been full of the fact that whole streets in some of the more expensive areas of London are owned by offshore companies. Action finally came in this year’s Budget with a threepronged attack:
From Budget Day, SDLT will be payable at 15% if the purchaser of a residential property is a company.
A new tax, the annual charge
From April 2013, an annual charge (which many are seeing as the UK’s first wealth tax) will be imposed on residential properties worth over £2m that are owned by a company, whether that company is resident in the UK or offshore. The annual charge will range from £15,000 for properties worth just over £2m, to £140,000 for properties worth over £20m.
CGT extended to certain non residents
In addition, it is proposed that non resident companies and trustees that own UK residential properties will be liable to pay capital gains tax (CGT). Until now their non resident status had protected them from CGT. Of these three changes, it is only the extension of CGT that will apply to non resident trustees: a purchase or ownership by trustees will not trigger the 15% SDLT charge or the annual charge, unless the structure also contains a company.
We have prepared a briefing outlining the proposed heads of charge and some of the issues that those who may be affected need to think about in the coming months. There is a window, between now and next April, when it will be possible to plan to mitigate the impact of the new rules on affected properties. Briefly, affected properties are any residential property that was worth more than £2m on 1 April 2012 (ie last April) that is owned by a company (including by a corporate property developer) or (for CGT) by offshore trustees.