In 2012, the government declared war on ‘non natural persons’ buying high-value properties. “Zombies” as we have come to know them are, to all intents and purposes, overseas companies.

Contrary to popular belief, banging them on the head is not the appropriate way to destroy “Zombies”. The answer instead lies in new property taxes. In April 2012 the government introduced new Stamp Duty Land Tax (SDLT) thresholds of 7% for individuals and 15% for “Zombies” buying residential property worth more than £2 million. The government also announced proposals for a new Annual Tax and the introduction of Capital Gains Tax, both of which were subject to a consultation period which has now ended. The draft “Zombie” killing legislation is anticipated in mid- December.

The UK government was concerned that “Zombies” were being used to buy up high value residential property in the UK. Wealthy people were then selling their “Zombie” on to someone else, thereby avoiding SDLT. In practice, this was not commonplace. The main drivers for holding property using a “Zombie”, were to give non-UK residents privacy and also comfort, that following their death, their heirs would not face a significant (40%) Inheritance Tax bill - turning the traditional image of a “Zombie” being a bad thing on its head.

The proposed Annual Tax will depend on the value of the property, will range from £15,000 for properties worth over £2 million to £140,000 for properties worth over £20 million. This sum is of course paid every year and is in addition to the higher rate of SDLT payable by “Zombies”.

Capital Gains Tax (CGT) will be payable on the sale of property by “Zombies” and will apply (at an as yet undisclosed rate) on all gains from the property and not just gains that have arisen since the introduction of the tax.

The effect of the consultation has been immediate. Land Registry figures, published on 27 July 2012 reveal that there has been a 43% reduction in the number of sales involving properties worth over £1 million down from 825 in April 2011 to just 468 in April 2012.

If you or your clients already own high value residential property using a “Zombie” it is vital that you review each structure, to determine whether it remains appropriate. The key is to be prepared, so you can take early decisions on whether restructuring is necessary.