The introduction of a form of 'mansions tax' was well trailed. The stamp duty land tax (SDLT) rate for purchase of residential property with a value of more than £2m has increased from 5% to 7% and we now have the consultation on the proposed annual SDLT charge for high value residential dwellings owned by non-natural persons, which is explained in the next article.
In order to escape paying SDLT at a rate of 15% on the purchase of single dwellings with a value in excess of £2m it is necessary for the residential property to be held personally or through a partnership structure (although if the partnership includes a company partner, then the 15% rate will apply). Our experience is that most non-UK resident and non-UK domiciled individuals choose to hold residential property through an offshore structure to avoid a charge to UK inheritance tax (IHT) on their death. The rate of UK IHT can be up to 40% and while most non-residents accept the payment of death duties in their country of residence and domicile, it is a high penalty to pay for a UK investment property.
In addition to the 15% SDLT charge, the UK Government is to consult on an annual SDLT charge for residential property held by certain 'non-natural' persons and the extension of CGT for residential properties to such persons who are non-UK resident. This is expected to be introduced from April 2013.
It should be noted that there are several practical issues arising from the SDLT changes and the further proposed changes are as follows.
- Where individuals/trustees are intending to acquire a residential property in the UK with a value in excess of £2m, early consideration needs to be given to the most appropriate holding structure.
- For existing structures, clients should be made aware of the proposed annual charges and capital gains tax changes.The changes could have a significant impact on expected UK tax costs going forward. It is recommended that individuals/trustees should now start to consider what is the most tax efficient structure to hold residential property from April 2013.The most appropriate structure will depend on the exact circumstances of each client including their current and prospective residence and domicile status.
It is recognised that many wealthy clients prefer anonymity and this will be an important factor in any considerations.
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.