UK Proposals for Taxation on Property

During this year’s budget the Chancellor announced a three pronged strategy to eliminate the use of companies to avoid paying Stamp Duty Land Tax.

It is said that these measures are likely to affect many previous arrangements that were put into place for reasons other than the avoidance of SDLT.

The three measures are;

  • a new SDLT rate of 15% for single residential properties purchased for over £2 million by companies and certain other entities (referred to as “non-natural persons”) and applicable to all transactions where the contract is entered into on or after 21 March 2012
  • a new “annual residential Property Tax” on single residential properties worth over £2m held by companies and other “non-natural persons”. This tax is worked out using a banding system based on the value and is applicable to all properties valued at £2 million or more on 1st April 2012 or at acquisition if later.
  • a new capital gains tax (“CGT”) charge on disposals by non-UK resident companies of such UK residential properties worth over £2 million

A consultation paper was released to provide clarity to the annual charges and capital gains charges. The consultation period ended on the 23 August 2012. The final form of these tax charges are dependent on the outcome of the consultation.

It is expected that exemption from the CGT can be obtained by claiming Principal Private Residency relief, meaning that the property is occupied by a beneficiary. There may be an exclusion for companies holding land solely as Trustee, although where the property is held as bare trustee the new charge may depend on the identity of the beneficial owner. Exclusions may also apply to charities and some property development companies.

The rate of the new CGT is to be announced in the UK’s budget 2013. So consideration should be given by foreign companies owning UK property worth over £2 million whether to remove the property before April 2013.

Draft legislation is available only for the capital gains tax at the moment.