07 December 2012

Taxation of UK Residential Property Owned by Offshore Companies

In the 2012 Budget the UK Government announced a package of measures to “ensure the fair taxation of residential property transactions”. The UK Government introduced with effect from 21 March 2012 a 15% rate of Stamp Duty Land Tax (SDLT) on acquisitions of residential dwellings costing more than £2million by certain non-natural persons; and Published a consultation on proposals for an annual charge on residential property owned by non-natural persons with effect from 1 April 2012 and the extension of Capital Gains Tax (CGT) to gains on the disposal of residential property by non-resident companies and others with effect from 6 April 2013. The response to the consultation alongside draft legislation for these measures was published on 11 December 2012 and provides as below.

Annual Residential Property Tax (ARPT)

A new annual residential property tax will be payable by certain non-natural persons (NNP) that own interests in UK residential dwellings valued at more than £2million. For the purposes of ARTP, NNP means:

  • a company;
  • a partnership, where one or more of whose members is a company; or
  • a collective investment scheme (including a unit trust).
  • irrespective of whether in or outside the UK.

A company owning property solely in its capacity as a trustee other than on a bare trust is excluded from ARPT.   ARPT will apply to all residential dwellings owned or acquired by a NNP on or after 1 April 2013.

Reliefs from ARTP will be available for (amongst others):

  • Property developers
  • Property rental businesses
  • Property traders
  • Farmhouses

ARPT will be payable at different rates according to the value of the property:

Value of Property ARPT
£2-£5m £15,000
£5-£10m £35,000
£10-20m £70,000
Over £20m £140,000       

Capital Gains Tax (CGT)

CGT is to be extended to non-resident NNPs disposing of interests in UK residential property where the amount or value of the consideration for the disposal exceeds £2million.

Note that for the purposes of CGT, NNP means any non-UK  resident person who is not considered to be an individual, including companies and other bodies corporate, trustees and collective investment vehicles.

The UK government is also considering extending the CGT regime to apply to disposals of high value residential property owned by UK NNPs.

CGT will only be payable on gains accruing on or after 6 April 2013 (it had been proposed that the measure would apply to the total gain accrued during ownership of the property and not only the gain accrued after April 2013).

Restructuring Ahead of April 2013

In light of these new measures, service providers will need to carefully consider what steps should be taken in respect of the valuation and possible “de-enveloping” of UK residential properties owned by companies or forming part of any trust fund.

The Carey Olsen team is able to assist in advising and implementing any Guernsey restructuring that may be required in order to respond to these changes. Please do not hesitate to contact your usual contact or any other member of the team for assistance.

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