Her Majesty's Revenue and Customs has long had a reputation as one of the strictest tax collectors globally, but until recently, non-domiciled non-resident persons were treated leniently with regard to certain taxes affecting investment properties.
Now, with the announcement of the UK 2014 budget by George Osborne, UK residential property held by "non-natural" persons1 will be subject to new tax regimes.
1) Stamp Duty Land Tax (SDLT)
At present a rate of 15% applies to residential dwellings valued at more than £2 million purchased by non-natural persons, by this we mean if the dwelling is purchased via an asset holding vehicle. The change lowers the £2 million threshold to £500,000.00.
The change came into effect on 20th March 2014. Please beware, however, Her Majesty's Revenue and Customs are quick to claim your money but not so quick to update their website! The website still refers to the old regime however the Financial Budget 2014 clearly states the change is effective as of 20th March 2014.
2) Annual tax on enveloped dwellings (AETD)
An enveloped dwelling is a property owned by a company or partnership and the reason the property is said to be enveloped is because its ownership sits within a corporate envelope.
The change to be aware of is that the government are bringing in two new rate bands:
2.1 The first band will apply to residential dwellings between £500,000 and £1 million. An annual charge will be applied of £3,500.
2.2 The second band will apply to residential dwellings between £1 and 2 million. An annual charge will be applied of £7,000.
Those who will be affected by this change in regime are persons holding properties through companies rather than in their own name or those leaving their properties empty.
The change comes into effect on 1st April 2015.
3. Capital Gains Tax (CGT)
As yet no further announcements have been made on changes to the CGT regime – the government announced back in 2013 that a CGT charge would be introduced on non-UK residents selling residential dwellings from April 2015.
A consultation document is expected to be released shortly.
Be thankful I don't take it all... the implications
Anyone who is thinking about buying investment properties or who are holding properties, whether directly or through a company or partnership, need to be aware of the changes in these tax regimes.
The new measures reflect the UK government's view that ATED has been a roaring success – it is forecast to raise an additional £90 million per annum from its inception.
However, that fact the AETD has been a success is of little if not no importance to those who have no intention of residing in the UK and yet become subject to its tax regimes nonetheless. Seek advice from the experts to ensure that you are minimising your tax liability as far as possible and to bring yourself fully up to speed with all these changes.
1 Non-natural persons is defined as a company, partnership with a corporate member and a collective investment scheme for the three taxes: Stamp Duty Land Tax (SDLT), Annual Residential Property Tax (ARPT) and Capital Gains Tax (CGT)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.