Taxation of UK Residential Property – Budget 2012

The UK Government Budget announced substantial changes to the structure of stamp duty land tax (SDLT) in the United Kingdom with immediate effect.

In addition, two new charges on high value residential property owned by certain “non-natural” persons were introduced and are expected to come into force from April 2013, pending further consultations:

  1. An annual tax charge (a form of “mansion tax” or “wealth tax”)
  2. Capital gains tax (CGT) on the sale or disposal of relevant property

The Government has stated that the measures are “designed to tackle avoidance and ensure that individuals and companies pay a fair share of tax on residential property”.

From 6 April 2013, CGT is to be extended to gains on the disposal or part disposal of residential property by non-UK resident, non-natural persons where the consideration exceeds £2 million.  This will include the grant of any options over such property, as well as the sale of shares in a company where more than 50 per cent of its value is derived from the UK residential property.

The definition of “non-natural persons” is wider for CGT purposes than it is for the annual charge as it catches broadly any entity that is not an individual.  This will include non-UK resident companies, trustees (excluding bare trustees but including trustees who are themselves individuals), collective investment vehicles, clubs and associations, personal representatives and “entities which exist in other jurisdictions that allow property to be held indirectly”.

Future Developments

The Government consultation on the new annual charge and CGT for non-UK resident, non-natural persons is still at a relatively early stage and will close on 23 August 2012.  A response to the consultation is due to be published by the Government in the autumn.  Draft legislation is due to be published for further consultation shortly thereafter, before being introduced in the Finance Bill 2013.  This means that the new charges as set out above may change before they come into force.

In the meantime, non-natural owners of high value UK residential property need to consider two essential points of action before the rules come into force in April 2013.

First, they should ensure that a valuation is arranged and carried out before the proposed annual charge comes into effect on 1 April 2013.  Non-natural property owners will need to determine whether they come within the new charge and, if they are in any doubt, obtain a valuation report (from a suitably qualified valuer of real estate) for their property as of 1 April 2012.  While self valuation is permitted, it would not protect the tax payer from possible penalties where the property is found to have been undervalued significantly.

Second, careful consideration of the current structure should be made and we would strongly suggest a consultation with one of our advisory team on +352 26 80 46 96, or info@coficom.lu