If, as expected, the 2012 Budget proposals regarding “de-enveloping” residential property in the UK go ahead then investing in UK residential property worth more than £2m will become something of a tax minefield both for the current and future investor.

Summary of the Changes:

  • In force – from 22 March, 7% Stamp Duty Land Tax applies to the purchase of UK residential property of £2m+; 
  • In force – from 21 March, 15% Stamp Duty Land Tax applies to the purchase of UK residential property of £2m+ by “non-natural persons” (e.g. companies and partnerships where there is one corporate partner); 
  • In the pipeline – from 1 April 2013, an annual charge, ranging from £15,000 to £140,000, is due to apply to such non-natural persons owning UK residential property of £2m+; and 
  • In the pipeline – from 6 April 2013, Capital Gains Tax (CGT) is due to become payable by the said non-natural persons and also trustees on any gain directly or indirectly stemming from the disposal of UK residential property of £2m+ at a rate to be confirmed (the current rate is 28%).

The exact nature of the annual charge and how the application of CGT will work are yet to be determined. We are therefore advising clients to adopt a wait-andsee approach before rushing to unwind or reorganise any existing affected structures. The likely operation of the legislative measures should become clearer following the advertised consultation periods later this year, at which point implementation of planning will become a priority.

Next Steps:

So what can be done now, before the end of the extended consultation period (23 August 2012) and the publication of draft legislation (in the autumn), to smooth the path for a potentially hurried reorganisation?

We would recommend that all relevant structures are reviewed and the information gathering process is commenced. This will help your tax and legal advisers find an appropriate solution as soon as the legislation is published without leaving it to the last minute at the end of the tax year. Any restructuring is likely to involve fiduciary and corporate service providers, solicitors and bankers so carrying out some of the groundwork now will ensure that everyone is ready to act in a timely fashion whether retaining the structure, engendering a rebasing (to wipe out any capital gain accrued to date) or restructuring (either into direct ownership or into an alternative structure).

Recommended groundwork would include the production of a report including the following:

  • personal circumstances of the beneficial owners, including all beneficiaries and the settlor (age, health, family, residence, domicile, nationality, preferred jurisdictions and religious/ethical background);
  • motivation behind and objectives of the structure (e.g. asset protection, estate planning, intergenerational/succession planning, tax mitigation, commercial reasons or confidentiality);
  • valuations of all relevant properties (even if informal) as at 1 April 2012 and current (if different) together with the base cost/purchase price;
  • confirmation of any existing debt within the structure;
  • confirmation of whether anyone is in occupation of the property and upon what terms; 
  • background on the property business (if there is one) (e.g. development, investment, mixed use, commercial and/or residential); 
  • confirmation of what the costs would be in (i) winding up or (ii) maintaining the structure (liaise with your fiduciary/corporate service providers as necessary).

Armed with all of the above details, we should be able to at least consider some of the options currently available, whether you are about to purchase a UK residential property of £2m+ or already have one tied up within an existing structure.

Although be warned there is no one size fits all remedy and existing tax avoidance legislation will make restructuring a complex process with plenty of scope for mistakes if appropriate specialist advice is not obtained on all aspects.


Beware of the promotion of “win-win” tax planning solutions which sound too good to be true. On closer scrutiny such schemes are often likely to be aggressive and, as such, could be caught by the UK’s new “general anti abuse rule” (GAAR) which is due to come into force on 1 April 2013.