A number of new property taxes were introduced in the March budget; these were largely aimed at reducing tax avoidance schemes and for some property owners there will be considerable implications.
The two main tax reforms, effective from the date of the budget, are:
- The so called ‘mansion tax’. This will affect anyone buying residential properties worth £2 million or more. This includes freehold properties, new leases and leasehold assignments. Purchasers will be liable to pay stamp duty land tax at a rate of 7% of the purchase price, increasing the minimum tax levy to £140,000 from £100,000.
The previous increase in the stamp duty land tax rate of 5% for properties where the purchase price is over £1 million but under £2 million still applies.
- Stamp duty land tax at the rate of 15% will now be charged on residential properties where the value exceeds £2 million, where those acquiring such properties are certain types of ‘non-natural persons’. This includes companies, collective investment schemes (including unit trusts) and partnerships in which a non-natural person is a partner. In certain circumstances, property developers and corporate trustees will be excluded from the new rate.
This aims to close the loop-hole where properties are bought by a company, paying the relevant stamp duty at that point, but then sold at a higher price by the company which then only has to pay stamp duty land tax at just 0.5% on the value of the shares, compared to the usual stamp duty charge (immediately prior to the budget) of 5% for properties valued at over £1 million.
Naturally, this will deter companies from selling property in this way, and so it is important that if you own property through a company or if you are considering buying property in this way, you review the tax position as a result of this budget change.
Two further proposed changes are currently subject to consultation:
- The Government proposes to introduce the payment of an annual charge, effective from April 2013, payable by non-natural property owners where the value of UK property is worth £2 million or more. The example figures given are a minimum charge of £15,000 up to a maximum charge of £140,000 for houses worth over £20 million - a substantial liability.
This policy is not very developed and it is difficult to see how it will fit in with the stamp duty land tax regime.
- There are also proposals to charge capital gains tax on the disposal of UK residential properties by non-resident non-natural persons, such as offshore companies. Again, this is designed to counter tax avoidance where properties are being purchased through offshore companies to avoid paying stamp duty land tax.
If you are planning on selling or buying property in the UK, it is important that you are aware of the implications and take advice on the stamp duty land tax liabilities.
Although the new "Robin Hood" taxes seem to target only the rich, there was no good news for those starting on the property ladder, and whilst this change was not part of the budget, first time buyers have now lost their stamp duty land tax relief as from 24 March this year.
The overall impact on the property market, in particular the higher end of the property market, could be dramatic. Lots of high value properties are owned by companies which adopt the structures mentioned above, and will soon be caught by these proposals.
The Government is clamping down hard, and we are advised that retrospective legislation will be used to close down avoidance schemes where necessary. Therefore, it is also important to review your existing property ownership arrangements.
For further information please contact Yildez Betez