Budget 2012

The new UK Budget 2012 introduced some important changes in the taxation of high-value residential properties in the UK.

Effective from 22 March 2012, the top rate of Stamp Duty Land Tax (SDLT) increased to 7% on acquisitions of UK residential properties worth over £2 million. Previously, the highest SDLT rate was 5% on acquisitions worth over £1 million. The existing SDLT rate of 5% will be applied to the property acquisition transactions where the consideration is more than £1 million and not more than £2 million.

In addition, the legislation will be introduced in the Finance Bill 2012 imposing a higher SDLT rate of 15% on acquisitions of UK residential properties with the value of more than £2 million by certain “non-natural persons”. A “non-natural person” includes companies, collective investment schemes and partnerships in which a non-natural person is a partner. The Finance Bill 2012 may expand this definition of a “non-natural person” and therefore, it is necessary to see what the detailed rules will state in order to access the full impact of new regulations. Although it is already clear that the impact will be great, since the use of those corporate structures was one of the preferred methods of property ownership by high net worth individuals. The new rate applies to acquisitions fully or substantially completed on or after 21 March 2012.

The Government also announced that there will be an annual charge imposed on residential properties with the value of over £2 million owned by certain “non-natural persons”. If this annual charge is introduced it will be payable from April 2013. The level of the charge is not known at present, however, it is expected to be along the following lines:

  • Properties valued between £2 million and £5 million: £15,000.
  • Properties valued between £5 million and £10 million: £35,000.
  • Properties valued between £10 million and £20 million: £70,000.
  • Properties valued above £20 million: £140,000.

The Government is also considering introducing from April 2012 a capital gains tax on gains from disposals of UK residential property and shares or interest in UK residential property by “non-resident non-natural persons”. Currently, no definition of the “non-natural person” has been introduced. Therefore, potentially this measure will encompass the sale of shares in companies that owe such UK residential property.

As an overview, these new Budget changes introduce certain disincentives to holding high-value residential property in the UK via corporate structures. Owners of such properties should consider conducting a review of their portfolios to assess whether the benefits of owning property through a corporate vehicle (including inheritance tax benefits and confidentiality) are justifiable taking into consideration such increased level of taxation.

Personal tax and investment
The Government introduced a reduction, from April 2013, to the income tax rate on the income exceeding £150,000 from 50% to 45%.

Budget 2012 further extend the remittance basis of taxation benefits to non-UK domiciled persons, who have been resident in the UK for at least 12 out of the past 14 tax years. However, the remittance basis charge is raised to £50,000 from the previous £30,000 starting from April 2012.

Source: Oracle Capital Group