June 26, 2012
The morality of what is described by David Cameron as ‘aggressive tax avoidance’ is big news right now after the debacle with Jimmy Carr and his participation in the K2 scheme. Celebrities and the very wealthy are clearly being targeted as HMRC continues to seek ways to improve its incoming revenue levels.
Over recent years, the high end property market in London has seen non-UK domiciled individuals making expensive purchases through offshore companies. This has had a number of advantages – confidentiality, avoidance of inheritance tax and capital gains tax (CGT), and reduced stamp duty land tax (SDLT) by the purchase of shares in a company owning property rather than the property itself, to name a few.
In the March 2012 Budget, the Government announced the introduction of new anti avoidance rules to prevent the avoidance of SDLT and CGT on the purchase of UK residential property by ‘non-natural persons’.
The SDLT increase was launched with immediate effect from 21st March 2012.
15% SDLT for non-natural persons
This affects investors buying UK residential property where the consideration exceeds £2m and the purchase is made by a ‘non-natural person’.
A non-natural person is a company, a partnership (where at least one of the members is a company) or a collective investment vehicle. Trusts are specifically excluded as non-natural persons for this purpose.
In the event of such a purchase, the rate of SDLT payable is now 15%.
Further charges to be announced
On 31st May, HM Treasury also issued a consultation document covering proposed new rules for the taxation of UK residential property held by offshore ‘non-natural persons’, which is likely to come into effect from April 2013.
The aim is to encourage those who have, for tax reasons, put high value UK residential property into offshore non-personal ownership, to take them out and own them personally.
It is proposed that there will be both a CGT charge and an ongoing annual levy.
This time, the impact will be felt amongst owners of UK residential properties where the owner is an ‘off-shore based non natural person’. The Treasury has published the following details in relation to these new rules:
- For the purposes of the annual charge non-natural persons will have the same meaning as for SDLT above, but will also include trusts, personal representatives and offshore entities which allow property to be held;
- Firstly there will be an extension to CGT to include gains on disposals of UK residential property by non-UK resident non- natural persons (the legislation did not specify that this change would only apply to property above a certain value); and
- Secondly the Government will consult on the introduction of an annual charge on UK residential property owned by non-natural persons. This charge is likely to begin at £15,000 p.a. for properties worth between £2m and £5m.
The introduction of both of these, quite draconian, new rules demonstrates for clients that it is clear the Government is taking serious action against what it regards as “individuals who have put such high value property into envelopes for reasons including tax avoidance”.
If you currently own expensive UK residential property through an offshore entity, it is advisable to await the outcome of the consultation before deciding on the best course of action. Care will need to be taken in moving property as this may have SDLT, CGT, inheritance tax and income tax implications.