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Business News: James Wolfson of Healys LLP on corporate conundrums
CORPORATE CONUNDRUMS AND OTHER CHALLENGES FOR PROPERTY INVESTORS INTO THE U
Foreigners purchasing high value properties in the UK, particularly in London, are greater exposed to inheritance tax, particularly if the properties have future growth potential. Inheritance tax is chargeable at 40% on estates which exceed the ‘nil rate band’ exemption (currently £325,000).
Prior to 1 April 2013, it was common for non-domiciled persons to acquire UK residential properties through an offshore company, the shares of which were often held by an offshore trust. The tax regime introduced in March 2012 curtailed ownership of high value residential properties by offshore companies.
Impending changes to the capital gains tax regime applicable to non-residents owning UK properties used as dwellings has introduced uncertainty as to whether offshore companies is the vehicle of choice to hold investment properties, as well.
Since 21 March 2012, companies (and certain other corporate entities) holding high value residential property are now liable to 15% Stamp Duty Land Tax (SDLT) on acquisition, recurring yearly ATED charges, and also capital gains tax (CGT) at 28% on the ‘ATED-related gain’ upon disposal of the property.
Previously, the gains of offshore companies disposing of UK residential properties escaped CGT.
The threshold at which the tax applies is to be lowered to £500,000 over the next two years. As from 1 April 2015, the entry level for the tax is any property over £1,000,000.
Reliefs apply where the property is held as part of a business (e.g. property rentals and developments).
The new tax regime is a deterrent to using offshore companies, unless the company is merely acting as nominee.
‘Future Gains’ of Non-residents
Additionally, in his Autumn Statement in December 2013, the Chancellor announced that, from April 2015, capital gains tax is to be extended such that ‘future gains’ on all disposals of UK properties used as a dwelling by non-residents would be subject to the charge.
It appears that non-resident individuals and partners holding such properties will be caught by the new regime, as are non-resident companies. Foreign trusts may be affected. The details regarding the applicable rates and how the tax is to operate are yet to be announced. It is anticipated that the gain may be calculated by reference to a date from which the value of the property has been ‘rebased’.
A consultation was held between April and June 2014, and it is anticipated that the outcome of the consultation is to be published by the end of the year.
The applicable corporate rate may be a determining factor as to whether to use companies for dwellings held for investment purposes.
Should non-residents be imminently acquiring UK residential properties, advice should be sought as to possible alternative solutions to mitigate UK taxes, and the timing of completion.