Stamp duty shock announcements and a CGT surprise

We were expecting a number of changes aimed at stamping out stamp duty land tax (SDLT) avoidance but the changes announced by the Chancellor have gone far further than was expected.  They include:

  • 7% SDLT charge on the acquisition of residential properties over £2 million from tomorrow, 22 March 2012.
  • 15% SDLT charge when residential properties of over £2 million are acquired by “non natural persons” such as companies from today, 21 March 2012.
  • the Government will consult on the introduction of an annual charge on residential properties owned by non natural persons valued at over £2 million; legislation to be introduced with effect from April 2013.
  • capital gains tax (CGT) regime to be extended to disposals of UK residential property (or shares or interests in such property) by non-resident, non natural persons; to be introduced with effect from April 2013.
  • SDLT sub-sale relief to be restricted so that the grant or assignment of an option cannot satisfy the requirements of the sub-sale rules.  This will apply for transactions on or after 21 March 2012.




One thought on “Stamp duty shock announcements and a CGT surprise”

  1. These changes certainly represent unwanted news for both non-UK resident individuals and UK resident but not UK domiciled individuals who often own high value real estate in central London through a structure which includes a corporate owner. However, the main reason that such individuals commonly utilise corporate entities is for reasons other than CGT and stamp duty; e.g. to avoid part of their estate falling within the UK inheritance tax net and to avoid the need for a grant of probate.

    In many cases, the use of a corporate vehicle cannot properly be described as ocurring due to a desire to avoid CGT. This is because direct ownership would also not result in a CGT liability on a disposal of the property at a gain; whether due to the residence status of the owner or the availability of principal residence relief. Likewise, most individuals wanting to adopt such a transfer, transfer residential real estate into a new company, such that SDLT is payable on the transfer – so SDLT avoidance is not the driving force behind the use of corporate structures either.

    The comments that the Chancellor made about SDLT be avoided by the transferring of shares in companies owning residential real estate does not (despite the recent press coverage) ring true. There are other reasons why people often don’t want to own a property through a company, such as the risk of a benefit in kind charge arising on them using the property (as a “shadow director”) and many buyers don’t want to take on the risk of acquiring an existing company that may have unknown liabities (including tax liabilities) and so would rather buy the property itself (and so pay the SDLT).

    As such, I suspect that these new rules may be a reaction to the press coverage rather than to any substantive evidence that residential real estate is being transferred by way of a transfer of shares in a corporate owner.

    It will be interesting to see whether there is anything in the small print which affects transfers of shares in companies which already own residential real estate as of today. In particular, will these new CGT rules affect existing structures? Or will the old rules be grandfathered?

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