Property held by “non-natural persons”

The Budget announcement of a triple attack on residential properties owned in the UK through a holding company, which now or in future may be worth over £2 million, caught the tax advisory professions by surprise. Perhaps it is a substitute for the LibDems “Mansion Tax”.

It will have a significant effect on the way in which future purchases will be structured by non-resident owners, and presents existing owners with some difficult decisions over the next 12 months.

Details remain obscure pending issue of a Consultation paper, but the three elements are -

• SDLT @ 15% on purchase of residential property over £2 million by a company (but perhaps only 7% if by a Trust)

• An annual charge at perhaps 0.3% - 0.7% of the property value, although there are indications of a flat rate charge within certain value bands such as

  • £15,000 if £2 - £5 million,

  • £35,000 if £5 – £10 million,

  • £70,000 if £10 - £20 million, and

  • £140,000 over £20 million.

• Capital gains tax (CGT) to be assessed on sale of a £2 million + residential property by non-residents, including a company or trust, although the “main residence” exemption may apply in some cases.

The main motive in the past for using a company to buy a UK property has usually been to avoid Inheritance Tax (IHT) on the death of an individual owner. That may remain a valid reason, but is likely to be outweighed by the new tax charges.

Simple purchase by an individual may be the best route in future, supported by life insurance written in Trust if IHT is a serious concern.

The new rules are scheduled for 6 April 2013 so there is time for existing owners to plan, but it could be rash to take steps in advance of the Consultation paper.