|Annual Stamp Duty is Wealth Tax on Foreign Investors|
It has been called the Millionaire's Budget due to a headline grabbing reduction in the top rate of income tax from 50% to 45% (from 6 April 2013). As widely predicted, however, it is not all good news for wealthy international clients, especially in relation to tax on UK properties.
Four changes (or consultations on changes) of particular relevance to international clients were announced:
• With immediate effect, Stamp Duty Land Tax on the purchase of residential properties worth more than £2 million rises from 5% to 7%.
• Also with immediate effect, the rate of SDLT is tripled to 15% where residential properties purchased for more than £2 million are acquired by a "non-natural person". "Non-natural persons" will include companies, collective investment schemes (including unit trusts) and partnerships in which a non-natural person is a partner. It is yet to be seen whether these will include offshore trusts. We will probably know by 29 March, when the Finance Bill will be published.
• There will be a consultation on the introduction of an annual charge from April 2013 on residential properties worth more than £2 million owned by non-natural persons. The proposed rate of tax is not yet known. This would have some features of the "mansion tax" which attracted much pre-Budget publicity.
• The Government will also consult on the introduction, from April 2013, of capital gains tax on residential properties owned by non-natural persons. No further details of this charge have been given, but this could be a significant change in the UK tax implications of non-resident entities holding UK properties. It is not clear yet if it will include residential properties held as an investment.
It is less common these days for a residential property used as someone’s main home to be held by a company (because of the income tax charges that will arise if the occupier is treated as a shadow director of the company and the loss of the main residence CGT exemption). However, non-residents often hold UK property via an offshore company, so their position will need to be considered carefully.
The opinions expressed do not constitute investment advice and specialist advice should be sought about your specific circumstances.
Published on our website on April 10, 2012