The actual measure is aimed at certain “non-natural persons” and is stated to be a CGT measure. While CGT is one of the taxes involved in this anti-avoidance package, it is in substance a penalty against wealthy individuals seeking to save stamp duty land tax (“SDLT”) when buying a home through an offshore company.
This is aimed at residential properties valued at £2m or above. In brief, the measures are:
- SDLT to be charged at 15% on acquisition of the property;
- An annual tax on enveloped dwellings (ATED) – in other words, on those properties held within a corporate wrapper; and
- CGT charged at 28% on any gain on disposal.
This is targeted at the following scenario:
- The property is transferred to an offshore company – there will be an initial stamp charge, but this should be relatively low if the enveloping is done at the development stage;
- When a buyer comes along, he or she buys shares in the company. No stamp taxes are payable on foreign shares;
- When the buyer wishes to sell – instead of selling the property, he sells the shares. Again, no stamp taxes for the incoming buyer, and there is no CGT to boot as this doesn’t affect offshore companies holding property for non-trading purposes.
Note the massive 15% stamp charge – if the house/flat/mansion had been bought “normally” this would have been only 7%.
Furthermore, there is CGT payable at the rate of 28%, which is the rate normally applicable to high net worth individuals. But this is also a penalty because if the home had been bought directly, they might have had the benefit of private residence relief. This latter would depend on how much jetsetting they do each year – if there is a second home, then who knows which one is the main residence.
This won’t affect the following:
- Property development, investment rental and trading businesses – these activities can carry on as usual ;
- Residential properties open to the public for at least 28 days a year on a commercial basis – so the stately home is safe;
- Residential properties held for employee accommodation;
- Residential properties owned by a charity and held for charitable purposes;
- Working farmhouses;
- Diplomatic properties (we have to preserve diplomatic immunity); and,
- Some other publicly-owned residential properties.
It will be interesting to see whether tax advisers can get round this. How successful will they be in the light of the new General Anti-Avoidance Rule to be introduced shortly?
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