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UK 2012 Budget: Preparing for change PDF Print E-mail
News - Latest
Tuesday, 29 May 2012 14:58

This year’s UK Budget announced changes to both Stamp Duty Land Tax and UK Capital Gains Tax in respect of the purchase and sale of UK residential property. Julian Hayden, a director at Hawksford, considers the implications.


Non-UK domiciled and non-UK resident individuals have for many years often arranged UK property purchases through offshore trusts or companies.

Very rarely, if at all, has the motive been the avoidance of income tax and individuals not resident in the UK have been exempt capital gains in any event.

The principal reasons for setting up an offshore structure in these cases have been the preservation of anonymity and inheritance tax protection.

The use of companies for the ownership of residential property has fallen out of favour.  If anything, over the last few years, individuals have moved towards simplified structures either involving direct ownership by a trust or direct ownership by the individual, coupled with life assurance against the risk of inheritance tax.

The 2012 Budget has however introduced a number of measures aimed at cracking down on what are described as ‘avoidance’ techniques.

However misplaced this targeting, the forthcoming changes will require careful consideration and existing structures may need adjustment.

The changes

Two changes took effect from 22 March 2012:

    Stamp Duty Land Tax ‘SDLT’ at 7% on the purchase of residential properties worth more than £2m irrespective of the identity of the purchaser.
    SDLT at 15% on the purchase of UK residential properties worth £2m or more by all ‘non-natural’ persons.

As from 6 April 2013:

    Non-natural persons will be subject to UK capital gains tax on the sale of residential properties irrespective of their value; and
    An ‘annual charge’ will be levied in respect of residential properties valued over £2m and owned by non-UK resident non-natural persons.
There is to be a consultation process on the latter two provisions with a view to their coming in to force from 6 April 2013. A Consultation Document is due to be published shortly and it will be interesting to see what falls within the definition of non-natural persons, but it is perhaps likely that trusts will do so.

It will also be of great interest to know whether values will be re-based.

Immediate action may be premature, but existing structures will need to be kept under review and bespoke advice should be taken as the position becomes clearer.

Though it might be too early to start unwinding existing structures, now is the time to begin a review process and to consider the alternatives.

Who needs to be concerned about these changes?

Clearly existing non-domiciled or non-resident investors, or prospective investors in UK residential property, should be concerned. 

Individuals who have not yet exchanged contracts on a purchase over £2m will need to consider the additional costs of purchase and ownership – and possibly also the market effect.  Those who have already exchanged contracts should be within the old regime under transitional rules.

Individuals contemplating purchases through companies may wish to consider alternative arrangements in light of the 15% SDLT rate and the annual charge from 2013.

For example, non-domiciliaries might consider individual ownership coupled with life assurance and/or debt against the risk of inheritance tax or in some cases partnership structures might be appropriate. However, where possible, final decisions on structures should be deferred until more detail is known.

People simply wanting anonymity might consider holding through companies as nominees (rather than through companies as beneficial owners) which should be outside the new rules, but which offer no inheritance tax protection.

Current owners of shares in property owning companies will certainly need to review present arrangements, considering whether any reorganisation is required before April 2013 or how the additional charges should be funded.

UK property developers and the trustees of UK property owning trusts will also need to keep matters under review.

Conducting preliminary reviews will allow time for action in the limited period between having an understanding of the detailed provisions and their implementation.


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