A summary of the changes is set out below:
Residential properties held by non-natural persons ("NNPs")
The current tax regime applied to high value residential properties has been extended today to apply to residential properties worth £500,000 or more. Previously the rules only applied to residential properties worth more than £2,000,000.
Therefore, when the residential property held by a company or other NNP is worth more than £500,000 the following taxes apply:
- An enhanced rate of Stamp duty land tax ("SDLT") at 15% on acquisition
- Annual tax on enveloped dwellings ("ATED")
- Capital gains tax ("CGT") at 28% on gains
The effective dates are as follows:
- SDLT for transactions when the effective date is on or after 20 March 2014
- ATED will apply to properties worth £1,000,000 - £2,000,000 from 1 April 2015 and the annual charge will be £7,000. For properties worth £500,000 - £1,000,000 the charge will apply from 1 April 2016 and the annual charge will be £3,500.
- CGT on properties worth £1,000,000 - £2,000,000 will apply from 6 April 2015 and only applies to gains accruing after this date. For properties worth £500,000 - £1,000,000 CGT will apply from 6 April 2016 and again only applies to gains accruing after this date.
Capital Gains Tax; non-resident and UK residential property
The intention is to publish a consultation shortly on these changes which are planned to take effect from April 2015. There are currently no further details. This will presumably seek to tax gains on residential properties not caught by the ATED rules.
Residential property let to unconnected parties and commercial property are not caught by the new rules and in many cases, for non-residents, the use of a corporate entity will remain the preferred solution for holding UK property.
For non-residents looking to acquire residential property or currently holding residential property caught by these rules the position is more complex.
The taxes to be considered are:
- ATED costs
- SDLT costs
- Capital gains tax issues
- Inheritance tax issues
Also, individuals, for reasons of confidentiality, may not want to hold properties directly in their own name as the details of owners of UK property are a matter of public record at the Land Registry.
Using a company as a nominee for an individual to hold the property will protect an individual's confidentiality whilst taking them outside the scope of these rules.
In many cases the use of a company holding the property beneficially will still be preferable to allow ease of transfer and to mitigate against UK inheritance tax. The ATED cost is probably bearable, although the 15% SDLT charge is high.
Another option is to use a trust to acquire a property directly although inheritance tax charges applicable to trusts should be considered.
SMP Accounting & Tax can assist clients who wish to restructure existing property holding arrangements or clients looking to purchase new UK residential property.
If you have any queries, please contact your usual SMP adviser or one of the contacts below.
Tel: +44 1624 683262
Tel: +44 1624 683254
Tel: +44 1624 683251