International Newsflash Item – Are you a non-UK domicile owning property in the UK?
New taxes may soon apply
The United Kingdom is introducing legislation that will from April 2013 inflict an annual property tax on foreigners who own UK property through offshore companies. The legislation will affect properties which are valued at more than £2 million that are owned by “non-natural persons”.
In the past Australians buying UK property may have chosen to do so through an offshore company. This took advantage of an exemption allowed by the UK government to ensure the foreign owners would not be subject to UK inheritance tax. These taxes can be a much as 40 per cent on the value of the property, triggered by the death of the owner. Registering the property in an offshore company ownership also avoided stamp duty and capital gains tax on sale, as the transfer of the property could be affected by a transfer of the shares in the company, with no change in the title of the UK property.
The new Annual Residential Property Tax imposes an annual charge of a minimum of £15,000 and a maximum of £140,000 based on the value of the property.
Additionally, offshore companies that purchase UK property will have to pay 15 percent stamp duty and will now be subject to a capital gains tax of 28 percent.
There are a number of strategies to reduce the impact of the new legislation. The obvious one, being the transfer of the property to a non-UK resident individual, will potentially cause the asset to be swept into the UK inheritance tax regime.
Australian residents, or indeed any non-UK resident, owning UK Property should consult on the current ownership structure to determine whether they will fall within the ambit of the new taxes. If a restructure is required, UK capital gains will probably not apply if the change of structure or ownership is done by April 2013. Taxpayers should be mindful that any restructure may also have tax ramifications, in the relevant country in which the owner is subject to tax.
Clients with UK property should consider if the current structure is appropriate, and whether they will meet any of the concessions or exemptions available under the proposed legislation. We can assist with preliminary discussion and if necessary liaise with our overseas associated firms for action to be taken in the appropriate jurisdiction.
Ignoring the new legislation could be expensive. Taxpayers must also consider the prospect that properties currently below the two million pound threshold will, in time, exceed this value and be subject to the annual tax, as well as future capital gains on sale.
