It is not often that stamp duty land tax (SDLT) hits the front pages – but it certainly did so in the run up to the Budget.
Judicious briefing put across the message that 'rich foreigners' were avoiding SDLT on their Mayfair penthouses by acquiring them through offshore companies. This completely missed the point that, of itself, this did not avoid the SDLT charge (SDLT avoidance was common but not by this means), and that the reason why non-UK domiciled individuals used an offshore company to hold UK property was to keep it out of the inheritance tax (IHT) net. Nevertheless, the following measures were announced for residential property worth more than £2m:
- an immediate increase in the rate to 7% (previously 5%)
- a penal charge of 15% for that portion of the acquisition consisting of a single dwelling valued at more than £2m, acquired by a company (and certain other 'non-natural' persons)
- an annual charge to be introduced from 2013 on such residential properties held in companies, which could be up to £140k pa, further details of which should be available later in May.
The last two measures are aimed at deterring the 'enveloping' of high value dwellings in entities so as to reduce or eliminate SDLT on a subsequent sale. However, the legislation is so wide in scope that it goes well beyond the perceived abuse. It will catch high end property investment funds, normal UK property investment companies, development carried out by joint venture vehicles and many other situations where there is clearly no avoidance of tax involved. It appears that no ground will be conceded on amending the legislation to make it more targeted, which could have serious consequences for such businesses. Also, non-domiciled individuals will now need to reconsider their IHT planning.
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