Property investors generally look for growth in the value of their assets, so how could that growth bring them into a charge to tax that they did not expect?

Well, first some context – according to the UK Land Registry, the average house price in the Royal Borough of Kensington & Chelsea increased from £490,000 in 2003 to £1,078,000 in 2013.  That’s an increase of more than double in a 10 year period.  If that rate of growth continued, it would mean that a property currently worth around £900,000 in that Borough would be worth £2m in 2023.

No doubt, this is one of the reasons why there is a well-trodden path towards UK property investment, and it would look like this trend is set to continue.  Savills, for example, have recently issued their forecast for house prices Savills 5-year house price forecast.  They forecast growth of up to 25% in the next 5 years across the UK as a whole, so parts of the country could be far in excess of that.

Now to ownership structures.  The options for the structure in which property is owned are numerous and there are a variety of tax and non-tax issues to consider.  The relative importance of each will be different to each individual investor.

It is essential to consider the ownership structure from the outset as Stamp Duty Land Tax rates of up to 15% make it costly to change afterwards.  The need to take advice is clear, but what if that advice suggests ownership in a corporate vehicle?

Much has already been written about the tax rules which apply to properties worth more than £2m, and owned in a corporate vehicle (enveloped dwellings).  In a nutshell, the rules include a headline Stamp Duty Land Tax rate of 15%, Capital Gains Tax charges for properties sold using such vehicles and an Annual Tax charge dependent upon value.

Properties costing less than £2m are currently outside of this regime, and many investors are buying such properties – so what does the “anti-avoidance” legislation hold in store for them?

Well, HMRC have launched a consultation to explore the possibility of extending the capital gains tax aspects of the “over £2m” rules, so that they apply to lower value properties held in corporate vehicles.

The outcome of this consultation cannot be predicted, but my view is that HMRC are looking to squeeze as many properties into this taxation regime as possible.  Time will tell if they do, but even if HMRC don’t pass new legislation, we can be reasonably confident that, growth in property values will at some point push many more properties into the “over £2m” rules.

Given that investors in property invariably seek capital gains, this may in time prove to be a fly in the ointment for many.  However, until then it just adds one more factor to consider when deciding upon property ownership structures; whether you are a UK taxpayer or not.