I have
previously outlined some of the key taxation changes that came into effect starting in 2012 in relation to UK residential properties valued at over £2 million. These measures include the rise of stamp duty land tax for corporations, introduction of annual tax on enveloped dwellings for corporations and capital gains tax ( CGT ) upon the sales of properties for non-UK, non-natural property owners. The subsequent tax revenue received since these changes were implemented was larger than expected, which suggests that there are still many people using corporate vehicles to hold UK residential properties despite these taxation changes.
In 2014, the UK government announced more tax changes, which have brought many lower value properties within the scope of the charges.
Annual tax on enveloped dwellings ( ATED ) will be extended to properties valued over £1 million ( previously over £2 million ) from April 2015 and this will be lowered further to those valued above £500,000 from April 2016.
Corporations that own properties will have to pay an annual charge beginning at £7,000 per annum for properties valued above £1 million and £3,500 for properties valued above £500,000. In addition, corporations buying residential properties valued above £500,000 will now be subject to 15% of stamp duty land tax ( SDLT ).
Another notable change is the lowering of the minimum threshold for disposal of UK residential property that would be liable to CGT at 28%, which will drop to £1 million from April 2015 and then be brought down further to £500,000 from April 2016.
The government has also introduced new rules to charge CGT on non-UK resident individuals disposing of UK residential property. Under the existing regime, a non-UK resident does not need to pay any CGT on the gain made from a disposal of a UK residential property, unlike a UK resident under the same scenario ( assuming that in both situations the property being disposed of is not the individual’s primary place of residence ). To ensure both UK and non-UK residents are treated equally, the government has extended the CGT charge to non-UK residents with effect from April 2015 onwards.
Depending on whether the non-UK resident is a basic rate or higher rate taxpayer, he or she will be subject to either 18% or 28% CGT rate on gains made on UK property. Corporate owners will pay tax at 20%.
That said, unless the taxpayer elects otherwise, only gains arising from 6th April 2015 will be subject to the new tax. For example: if a non-UK resident bought a residential property valued at £200,000 before April 2015 and the property value rose to £400,000 in April 2015, CGT will only apply to any increase in value above £400,000 when disposing of the UK property after April 2015.
A possible way out of this charge is the ability to claim Private Residence Relief, designed to exempt a person’s main home from CGT. Regardless of whether they are UK residents or not, people who own more than one residential property have the right to elect one as their main home as long they reside there. Under the new rules, a non UK resident would only be able to elect for his UK property to be his principal residence if he spends at least 90 midnights there during the tax year.
However, individuals need to take care, as making such an election could, in certain circumstances, cause them to become resident in the UK for tax purposes.
With all these changes, it may mean that UK residential property investments will become more complex in future. We will discuss other forms of ownership as well as some of the actions that we can take to minimize the impact for non-UK residents next week.
Brendan Harper is technical services manage at Friends Provident International
