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UK residential property (worth £2M or more) owned by non natural persons

Draft legislation was published on 11 December 2012 (with further draft legislation on the CGT rules expected in early 2013) and is subject to further consultation until 6 February 2013.

  • Previously common and existing structures may not be appropriate for new purposes and should be reviewed.
  • Restructuring may be possible, but at a potential tax cost for some.
  • Advice should be taken in advance of any new residential property purchases

Three new tax measures were announced in the UK Budget on 21 March 2012 affecting UK residential property over £2million owned by non-natural persons (i.e. companies, non-natural persons which are members of partnerships which include companies, and collective investment vehicles).

Historically, non UK domiciled individuals may have held UK residential property through non-UK trusts and/or companies often to mitigate UK inheritance tax (otherwise due at 40% on the death of the owner). The Government's stated aims are (i) to make corporate structures unattractive for new acquisitions, and (ii) to encourage individuals to dismantle existing corporate structures, which are perceived to have been set up for the avoidance of SDLT. This is to be achieved through changes to stamp duty land tax, capital gains tax and the introduction of an annual residential property tax charge. There are currently no proposals to alter inheritance tax, so some structures may continue to be useful – but at a tax cost.

Non-natural purchasers and owners will not be subject to these new tax measures if the property is acquired or held as part of a genuine business activity (trading or letting), for employee accommodation or for charitable purposes.

  1. Stamp Duty Land Tax ("SDLT") - SDLT is payable by a purchaser upon acquiring UK land. For residential dwellings, a new penal rate of 15% applies for properties over £2 million where the purchaser is one of certain categories of "non-natural person" (including a company). The top rate for individual purchasers is 7%.
  2. Annual Residential Property Tax ("ARPT") -From 1 April 2013, a new annual tax charge will be levied on UK residential property held non-natural persons. The charge will range from £15,000 to £140,000, depending on the value of the property.
  3. Capital Gains Tax ("CGT") - CGT is payable by the owner of property on a sale (or on certain other disposals). Under existing rules, non-UK residents are usually outside the scope of UK CGT. From 6 April 2013, disposals by non UK non-natural persons will be subject to CGT at a rate of 28% (subject to tapering in some circumstances) but only on the gain arising since 6 April 2013. For consistency, the Government is also considering extending the CGT regime to apply to disposals of high value residential property by UK non-natural persons (currently subject to corporation tax, including on gains they realise on residential property).

Complex rules may apply where UK residents have enjoyed benefits from foreign trusts.

This is an outline of complicated draft and proposed legislation, the details of which are not yet known in their entirety. This memorandum does not constitute or contain legal advice.

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