UK Property related taxation – Update June 2012


UK Stamp Duty Land Tax – High Value Residential Properties and ‘Non-natural Persons’

In the Budget earlier this year the Chancellor announced changes to the current system of Stamp Duty Land Tax (‘SDLT’) as applied to high value residential properties that are owned by owned by ‘non-natural persons’ that is corporate entities, companies, partnerships and trusts. High value for these purposes is defined as a single residential property worth over £2 million.

The Budget brought into effect a new 15% rate of tax for such properties purchased by non-natural persons, with a lower rate of 7% applying to direct purchases by an individual(s) in their own name. The tax rates are subject to transitional provisions that we considered in our UK Budget Update of March 2012.

The Chancellor has now opened the consultation process on the following points:

1. The introduction of an annual charge for properties worth over £2 million and owned by non-natural persons;  and

2. The proposed extension of Capital Gains Tax on the disposal of residential properties worth more than £2million by non-UK resident ‘non-natural persons’.

1. Annual Charge
It would appear that the Chancellor is considering an annual charge in the range of £15,000 to £140,000 depending on the value of the property. We understand that rates being considered would start with the lower charge applying to properties valued at £2m to £5m, rising to £35,000 for properties valued at £5m to £10m, £70,000 for properties valued in the band £10m to £20m with a top rate of £140,000 applying to properties in excess of £20m.

It is proposed that the charges would be subject to an annual increase in line with the consumer prices index.

The value of the property will be taken as the current market value in April 2012 or the value at the date of purchase, if later, and will then be fixed for a period of 5 years from April 2013, before being updated in April 2018.

It is intended that the annual charges will be introduced from April 2013.

It should be remembered that the annual charge will only apply to non-natural persons, broadly companies, subject to certain exceptions, and will not apply to individuals purchasing in their own name.

2. Capital Gains Tax

It is proposed that the present rule that permits a non-resident company to escape capital gains tax on the sale of a UK property be changed. The proposal is to amend the rules to ensure that a non-UK company that sells UK property in the future will be subject to tax on any capital gains. The charge to CGT would also apply where the shares in the company are sold realising a gain. An indirect disposal would also include a disposal of a property owning company where more than 50% of the value of the assets is derived from UK residential property.

It is also proposed that the charge would apply to trusts but this element of the proposal at present remains open to consultation. The “non-natural person” definition is wider than the definition for the 15% SDLT rate and for the annual charge.

The gains are calculated using the existing CGT rules which will have a significant effect on the tax due as there will be no rebasing (except maybe to the value at 31 March, 1982). The gain will be the total gain accrued during the ownership of the property, as opposed to just the gain that accrues after the rule change in April 2013. This introduces a significant element of retrospective taxation.

The rate of tax has yet to be fixed but it has been suggested by some commentators that it might be in the region of 28%, though the rate is open to consultation.


We recommend that those who are considering purchasing a high value property in the UK through a non-UK structure should give careful thought to the increased rate of SDLT due on the purchase, the annual charge and the potential liability to CGT on the eventual sale of the property. The purchase through such a company is now an expensive option that may no longer be appropriate when it might be possible to achieve the intended objective through other means.

For those who already hold a high value property through a non-UK company structure it is too early to consider taking steps to change the structure until the detail of the proposed charges are clear. The issue should be kept under review as to whether the existing structure remains suitable and remains fit for the intended purpose. We consider that to take action now could be premature, when it should be remembered that extracting property from an existing structure will incur cost that could be greater that the cost of the proposed charges in the future. It is recommended to review the available records to determine purchase and subsequent improvement costs. This will enable the effect of the new charges to be assessed as soon as the precise basis for the tax becomes certain.
It is clear that existing and future structures must be reviewed as to their continued suitability.