UK residential property Archives - London Chartered Accountants Blog

In December 2015 HM Treasury issued a Consultation Document providing details of the proposal to charge an additional 3% Stamp Duty Land Tax (SDLT) on purchases of additional residential properties. The intention to levy an additional 3% SDLT had been announced in the Spending Review and Autumn Statement on 25 November 2015.

The stated intention behind this measure was to use some of the additional tax collected to provide £60m for communities in England where the impact of second homes is particularly acute. Furthermore it was suggested that the higher rates of SDLT will deter people from purchasing additional properties and therefore create greater scope for people to purchase their first home.

In the Budget on 16^th of March, George Osborne (the Chancellor of the Exchequer) announced that the proposal to levy higher rates of SDLT will go ahead as planned from 1 April 2016 but there were a few changes to the original proposals.

The higher rates will apply to most purchases of additional residential properties in England, Wales and Northern Ireland where, at the end of the day of the transaction, individual purchasers own two or more residential properties and are not replacing their main residence.

Where someone has more than one property and disposes of a main residence, it was proposed that they would have 18 months to buy a new main residence, before the higher rates of SDLT apply assuming they retain their additional property. If someone buys a new main residence before disposing of their previous main residence they are entitled to a refund from the higher rates of SDLT if they dispose of their previous main residence within 18 months.

The good news is that the 18 month period has been extended to 36 months. For those people who sold their main residence before the announcement of the higher rates on 25 November 2015, they have until 26 November 2018 to acquire their replacement main residence. Furthermore those who have inherited a small (50% or less) share in a single property within the 36 months prior to the purchase of a main residence will not be liable to the higher rates of SDLT

The original consultation document proposed that married couples would be treated as one unit. Couples who were formally separated would be treated as separate individuals The revised proposals recognises that if a couple separate they do not always have a formal separation granted by deed or by the courts. Consequently married couples will not be treated as one unit if they are separated in circumstances which are likely to be permanent.

Unfortunately the SDLT proposals confirm or announce a number of items disappointing news.

Non UK property

Foreign residential properties must be taken into account in deciding whether the property being acquired is an additional property. So a person coming to England from abroad and who has retained their foreign property will pay the higher rates of SDLT on acquiring a property here.

Property bought by companies

All corporate purchases of residential property will be caught for the higher rates. The original proposal to allow an exemption from the higher rates for bulk purchases of 15 properties or more has been withdrawn. However where at least 6 dwellings are being acquired, it is possible to claim multiple dwellings relief which may mitigate the higher charge to a limited extent.

Furnished holiday lets will be treated in the same way as other residential properties.

Purchases by property renovators will be treated in the same way as property purchases made by others.

Trust Acquisitions

On trust acquisitions, the position is that for bare trusts and life interest trusts, the higher rates will apply if the property being acquired is an additional property for the beneficiary. All residential property purchases by discretionary trusts will be liable to the higher rates.

In conclusion

The higher rates of SDLT represent yet another tax assault on residential property. Some of the rules are likely to run counter to the stated policy objectives of increasing the supply of housing for people who want to purchase a home. No doubt the policy aim was swamped by the prospect of raising additional tax revenue – plus ça change!

Now that the summer is behind us, we await the promised consultations on the wide ranging and far reaching proposals for non UK domiciled individuals announced at the Summer Budget 2015.

It has always been difficult for the Government to ensure that the non-domiciled community are encouraged to continue to come to the UK, where they undoubtedly can bring investment, skills and spending power, without the general public perceiving that the tax breaks for non UK domiciles are too great. The phrase “not looked fair” was actually used in the official announcement.

So what could we be facing?

Resident non UK domiciles

A deemed domicile rule for all UK taxes (income tax, capital gains tax, inheritance tax etc.) once an individual is UK resident for 15/20 tax years from 6 April 2017 with no “grandfathering rules” (also includes taxes on employment related securities). So full UK taxation on a worldwide basis from 6 April 2017.
Extension of the time residency required abroad to lose UK deemed domicile from potentially 3 or 4 years to an overall 5 year period (including those who wish to emigrate permanently).
The taxation of overseas trusts is to be fundamentally overhauled and non UK domiciles will find the tax planning and usefulness of these structures severely curtailed.

Returning UK domiciles

An individual who has a UK domicile of origin will automatically revive his UK domicile for taxation purposes on returning to the UK after 5 April 2017 regardless of their domicile under general law.

Crucially, any overseas trusts set up whilst that individual has been non UK domiciled will be treated as though set up by a UK domiciliary and taxed accordingly when the settlor is UK resident (this includes UK IHT).

UK residential property

Further changes have been announced from 6 April 2017 to bring all UK residential property, whether held directly or indirectly, within the net of UK IHT. This is intended to be the final piece in the jigsaw to remove any tax benefits whatsoever from holding a UK residential property within a structure.
The IHT charge will be on the full market value of the residential property net of any borrowings to purchase it, on the usual chargeable events, such as death, certain gifts, exit and 10 year anniversary charges etc.
Although to be based on the Annual Tax on Enveloped Dwellings definitions, there will be no de minimus limit and no reliefs, such as letting, will be available.
The government will also look at enabling the “de-enveloping” of current structures without a tax cost.

The limited guidance issued after the Summer Budget, just on these measures, mentioned consultations more than 12 times, so it is to be hoped that HMRC will take their time and listen to the responses they receive when looking to implement the Government’s wishes.

These proposals will involve amending existing legislation across the statute books as well as new legislation. The last time such wholesale changes were implemented, was pretty quickly followed by a relaxation of some of the changes. It is to be hoped that HMRC will consider carefully the responses that the interested bodies will furnish them with.

Anyone potentially affected by these changes must take advice in good time to allow for a measured response to their own personal position.