UK residential property – major changes for non-UK resident investors
By Graham Busch, Lawrence Grant Chartered Accountants
and Nick Brennan, Citroen Wells Chartered Accountants
Recent proposals and enactments change the UK tax landscape for non-UK residents investing in UK residential property. The changes do not apply to commercial property.
The position pre-March 2014
1) A special stamp duty land tax (SDLT) rate of 15% applied to the acquisition of residential property valued at more than GBP 2 million by a non-natural person.
2) Annual tax on enveloped dwellings (ATED) introduced with effect from 1 April 2013 applies to “companies” owning UK residential property valued in excess of GBP 2 million as at 1 April 2012 or at acquisition, if later. ATED sets an annual charge in a number of bands based on the taxable value of the property, currently starting with GBP 15,400 for properties valued at GBP 2 million to GBP 5 million, going up to GBP 143,750 for properties valued at more than GBP 20 million.
3) To the extent that an ATED charge applies to a property sold after 5 April 2013, the rate of capital gains tax (CGT) on ATED-related gains accrued after that date is 28%.
4) Under existing law, non-residents are almost universally outside of the scope of UK CGT on the disposal of UK assets. The few exceptions include disposals of assets used in a UK trade and by former UK residents during a period of temporary non-residence (fewer than five complete tax years outside the UK) of assets held during residency. There can also be attribution of gains by non-resident trusts to UK beneficiaries.
1) The threshold for the 15% SDLT rate for acquisition of dwellings by “companies” has been reduced from GBP 2 million to GBP 0.5 million as of 20 March 2014. Certain property businesses remain exempt from this tax (and the charge as detailed in 2 below).
2) Draft legislation extends ATED (and ATED-related CGT) from 1 April 2015, when there will be a charge of GBP 7,000 for properties valued between GBP 1 million and GBP 2 million, and from 1 April 2016, when there will be a GBP 3,500 charge for properties between GBP 0.5 million and GBP 1 million.
3) Proposed new rules for charging CGT to all non-resident owners of UK residential property to apply from 6 April 2015. The UK tax authorities are consulting on the proposed provisions, the main points are:
- CGT will be charged on gains by individuals, companies and non-UK resident partners of partnerships.
- Rebasing the cost of the property to April 2015 is not specifically stated in the document, but is clearly implied.
- The CGT rate for individuals will be 18% or 28%, depending on the level of the individual’s total UK income and gains for that tax year.
- The CGT rate for companies has yet to be determined. This could be 20% or 28%, based on currently prevailing rates.
- Property businesses and trusts will not be exempt, but investments through a UK REIT (Real Estate Investment Trust) or a non-UK equivalent will be exempt.
- Oddly enough, the CGT ATED regime will continue to operate alongside the proposed new regime. It is not yet clear how the two regimes will interact.
The UK authorities were surprised by the high level of tax collected from the 15% SDLT and ATED and have seen an opportunity to increase the tax-take by reducing the threshold at which these taxes start. Those affected should consider their position.
Non-residents now have until 5 April 2015 to undertake any available planning to mitigate future CGT on residential property.
Lawrence Grant, Chartered Accountants, London, United Kingdom
T: +44 208 861 75 75
Lawrence Grant, Chartered Accountants provides UK and international accountancy and tax services to companies and individuals considering UK investment opportunities. We combine a thorough evaluation of your business with expert advice, planning and projections to help your business avoid unnecessary taxes, both in the UK and abroad.
Graham has over 25 years' experience of working in International Tax, consulting to a wide range of clients, from large multinational corporations to SME’s and individuals. The focus is on international structuring but also advises individuals coming to or leaving the UK.
Citroen Wells Chartered Accountants, London, United Kingdom
T: +44 20 7304 2022
Citroen Wells’ partners include specialists with years of practical knowledge assisting our international clients including the financial problems facing property investors, dealers and developers. We offer a range of high quality accounting, tax, financial and business services.
Tax partner Nick Brennan handles a wide range of issues calling on extensive experience of compliance and structuring, both UK and international, in advising individuals, businesses and trusts. He is a Chartered Accountant and is secretary of the London Branch of the Chartered Institute of Taxation.
published: June 2014