On 31 May 2012 HM Treasury issued its consultation document in relation to the proposed new rules for the taxation of UK residential property held by foreign entities.
Anti-avoidance rules were announced in the March 2012 budget to prevent the avoidance of SDLT and CGT by the acquisition of residential property by ‘non-natural persons’.
Where the consideration exceeds £2 million, purchases of residential properties by ‘non-natural persons’ are, from 21 March 2012, now subject to a special SDLT rate of 15%. For the purposes of SDLT a non-natural person is defined as:
- A company;
- A partnership, one or more of whose members is a company; or
- A collective investment vehicle.
However, trusts are specifically excluded as non-natural persons for the purpose of SDLT.
The new consultation cover the introduction of a new annual charge and a CGT charge on UK residential properties worth over £2 million owned by offshore ‘non-natural persons’. These changes will come into effect from April 2013.
HM Treasury has published the following details in relation to these new rules:
- For the purposes of the annual charge, ‘non-natural persons’ will have the same meaning as the definition for SDLT (see above).
- For the purposes of the CGT charge, non-natural persons will also include trusts (excluding bare trusts) as well as:
- Companies and other bodies corporate;
- Collective investment vehicles;
- Personal representatives;
- Clubs and associations; and
- Entities that exist in other jurisdictions that allow property to be held indirectly.
- The CGT rate will not necessarily be the same as the current rates for individuals and will be announced later. This will not be part of the consultation.
- The CGT charge will not be applicable to companies which pay corporation tax.
- It appears that indexation will not be allowed in relation to calculating the gain made by a company or other entity where that gain is chargeable to CGT.
The intention of these measures is to “encourage individuals who have put such high value property into envelopes for reasons including tax avoidance to take them out”. It anticipated that many practitioners will need to oversee the transfer of properties out of complicated offshore structures. Care will need to be taken as the transfer may have CGT, income tax, IHT and SDLT implications and there are a number of options that will need to be considered in each case.