Insights

Taxing Times for Property Investors


11/04/2013

In the 2012 budget (with minimum changes made in the 2013 budget) the Chancellor announced substantial tax changes for owners of high value properties (over £2m). Changes proposed to Stamp Duty Land Tax (‘SDLT’), Capital Gains Tax (‘CGT’) and the introduction of a new Annual Residential Property Tax (‘ARPT’) (now re-named Annual Tax on Enveloped Dwellings (‘ATED’) in the 2013 budget) produced a ripple of concern amongst property professionals, particularly in the prime central London market.

Since the budget, consultations have been issued and amendments made to the initial proposals. Nowadays, one of the most frequent questions the property team at Gordon Dadds is asked is, “I own a property in an offshore company. What do the changes mean for me and do I need to re-visit the structure?”

Some of the changes are still not entirely in their final form and the basic answer to this simple sounding question is, “It depends on the individual and structure, and each case will be different.” However, here we consider some of the main changes and proposals.

Stamp Duty Land Tax

Properties worth between £1-2m attract an SDLT rate of 5% on the purchase price.

Properties worth over £2m now attract an SDLT rate of 7%.

For properties acquired by certain ‘non-natural’ persons, including corporate bodies, this will rise to 15%. The Government’s main reason for doing this is to make it less attractive for property investors (in particular offshore individuals) to sell the shares of a company which holds a high value property, because Stamp Duty would only be charged at 0.5% of the value of the shares, rather than a higher rate of SDLT if the property alone were sold.

Capital Gains Tax

The initial proposed change was to charge CGT on gains incurred by all corporate structures on property disposals. This initially sent alarm bells ringing for all offshore companies. As a result, this will now only apply to gains incurred from 1st April 2013.

Some clients ask if they still need to re-visit their property-holding structure. This will now depend on other factors as there are other reliefs available and this should be discussed with their advisors.

Changes to the Market?

At the time of the 2012 budget, most property professionals predicted a huge slowdown in the prime central London market. But have we really seen this? The announcement did initially cause a small ‘wait and see’ ripple, but London is still seen as a safe haven for international investors from all parts of the globe. Certainly, the purchase of a property by an offshore investor by a British Virgin Islands company to avoid inheritance tax may have seen its day. However, with good advice, it is still possible to look at ways to minimise inheritance tax for beneficiaries.

Whilst the full impact has yet to be seen and some of the guidance has still to be issued, by speaking to your advisor, prime central London property is still a good market in which to invest.

Gordon Dadds