Property tax changes: are you prepared? The government has this year made it very clear that it is targeting tax avoidance schemes for high value residential property by introducing new measures. As a result of the proposed taxation changes, it may be in your best interest to restructure the ownership or even sell your asset. Tax specialists are recommending that formal valuations are carried out on residential properties held in corporate structures and with expected values above ÂŁ2million. Whatever route you decide Chesterton Humberts can provide the necessary property service. (Read on to find out more)
PROPOSE TAXATION CHANGES
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stamp duty land tax (sdlt)
In the 2012 Budget, the maximum rate of Stamp Duty Land Tax (SDLT) was increased from 5% to 7% on the purchase of residential properties in excess of £2 million. Also introduced was a new rate of 15% payable on acquisition of such properties held by “non-natural persons”, which are defined as: • UK or non-UK resident companies (except where acting as Trustee of a trust)
5%
• Partnerships where one or more of partnership members is a company
• Collective investment schemes
the annual charge
From 1 April 2013, an Annual Charge will be applied to high value properties (over £2,000,000) which are held by non-natural persons. The proposed charges are shown in the table below.
property value
proposed annual charge
£5 - £10 million
£35,000
£10 - £20 million
£70,000
£20 million +
£140,000
£2 - £5 million
£15,000
£
The Annual Charge will have a valuation date of 1 April 2012, unless the property is acquired or transferred to a non-natural person after April 2013, in which case the date of valuation will be the date of acquisition / transfer and the levy will be on a pro-rata basis. The Annual Charge will be increased each year and linked to the Consumer Price Index (CPI), with a revaluation date every five years from April 2012, with the next valuation date being 1 April 2017.
capital gains tax (cgt)
Historically the CGT levy has been residence based and non-UK residents have not been liable for this tax. The proposals outlined in the 2012 Budget would extend the CGT regime to apply to nonresident non-natural persons. The definition of non- natural persons for CGT purposes is proposed to be extended to include entities like offshore trusts, personal representatives of deceased estates and clubs or associations. Although the rates of Annual Charge have been proposed, the level of CGT applicable to non-natural persons upon disposal of a high value residential asset will not be revealed until the 2013 Budget. The rate will be announced by the chancellor on that date and will not be subject to consultation.
FOR SALE
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oPTIONS FOR OWNERS
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If you currently hold a property in a corporate structure you could either:
hold the property beyond april 2013
If taking this option, you would need to accept the Annual Charge willwill and understand that the property will be subject to the new CGT levy proposals when sold in the future. Specialist tax advice should be sought as to your personal benefits (or otherwise) of holding a residential property in a corporate structure beyond April 2013.
FOR FOR SALE SALE
sell now to avoid the new cgt proposals and annual charge from april 2013 Careful consideration of the wider picture should be taken before deciding on this option as the potential savings on avoiding the new CGT and Annual Tax charges may be outweighed by Inheritance Tax liabilities which may come into play upon disposal.
CONCLUSION The tax changes referred to above are due to come into force from April 2013 and, although at the time of writing the full details have yet to be announced by the Government, it would be prudent to be prepared to make decisions in advance of this date. Detailed and specific tax advice should be obtained from a specialist tax adviser before any decision is made as to whether to retain or unwind an existing structure, or to sell a property held in the structure. The most suitable route forward will vary depending on the particular circumstances of each case. Tax issues will need to be balanced with other concerns and the position may vary for property owned as an investment and property which is owned as a residence. A formal valuation of your property is recommended by tax advisors in order to prepare for any possible enquiries from, or investigations by, HMRC.
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key contacts for advice on how to proceed valuation advice
Chesterton Humberts has 45 Registered Valuers located in London and various regional offices able to provide formal valuations. For further enquiries please contact John Woolley on +44 (0)20 3040 8513.
agency advice
mortgage advice
Any changes in holding structures may require some degree of mortgage finance and we recommend Springtide Capital, an independent mortgage broker which can provide bespoke mortgage solutions. Please contact Henry Knight on +44 (0)20 3040 4400.
If you are considering disposing of your property Chesterton Humberts is ideally placed with a network of over 50 offices across London and the UK and a 21 overseas offices. Please contact Richard Davies on +44 (0)20 3040 8244.
chestertonhumberts.com The information contained above is of a general nature for guidance purposes only and is not a substitute for professional advice. Before acting, or refraining from acting, you are recommended to obtain bespoke tax / legal advice in relation to your personal circumstances from a qualified tax / legal adviser. Accordingly, Chesterton Global Limited and/or its agents cannot be held responsible for any loss as a result of acting or refraining from acting in relation to the information given.