In the 2012 Budget announcement the Chancellor, George Osborne, provided further details of the proposed changes to the Stamp Duty Land Tax (SDLT) regime in the UK.
Summary:
• New SDLT rate of 7% for residential properties over £2 million;
• Additional SDLT of 15% for residential properties over £2 million when purchased by ‘non-natural persons’ including companies/partnerships;
• Consultation on extension of Capital Gains Tax to gains on disposal of UK residential properties by non-UK residents, ‘non-natural persons’ from April 2013;
• Consultation on the introduction of an annual charge on residential properties valued over £2 million owned by ‘non-natural persons’ with the aim of introducing changes by April 2013.
Details of the Announcement:
Prior to the Budget the SDLT charge on purchase was 5% on properties valued over £1 million. A new rate of 7% will apply on residential properties valued over £2 million with effect from the effective date of purchase, usually completion, from 21st March 2012.
There are transitional provisions under which the 5% rate will continue to apply to purchase contracts exchanged before 22nd March 2012 with completion fixed to take place after this date.
A significant additional higher rate of SDLT of 15% has been introduced where the property’s value is £2 million or greater and the purchaser is a ‘non-natural person’. A ‘non-natural person’ will include companies and certain types of partnership, but property developers and corporate trustees may be excluded from the scope of this higher charge. The charge takes effect from 22nd March 2012 with the same transitional provisions as described in the paragraph above.
The Chancellor has also started two consultation periods, first on changes to the capital gains tax regime and second the possible introduction of an annual charge.
The proposed extension of the charge to capital gains tax would apply to the disposal of UK residential property and shares or interests in UK residential property by non-UK resident, non-natural individuals. It is intended that the charge would be introduced in the 2013 Finance Bill and take effect from April 2013.
The second consultation concerns the possible introduction of an annual charge on residential properties valued at £2 million or greater that are owned by non-natural persons. It is also intended that the charge would be introduced from April 2013. At present we have no indication of the likely level of the charge.
The advantages to an individual who is not UK domiciled to purchase residential property valued at over £2 million through the use of a non-natural entity, are significantly diminished, with the introduction of the 15% SDLT charge and the potential of an annual charge being introduced from next April. Furthermore, individuals who are UK non-resident are not currently subject to a charge on UK capital gains. However, they are likely to be brought within the scope of CGT on realising a capital gain on a disposal.
A tax and estate planning review of current and future property ownership structures should be undertaken.