New tax could hit owners of UK homes
Wealthy Hong Kong residents who own property in Britain could be facing a hefty tax slug if a new law is passed.
Changes to British property taxation rules, announced in the March budget, will hit those who have established companies to buy residential property worth more than GBP2 million (HK$24.2 million).
Any Asian or expatriate in Asia who owns a British residential property worth more than GBP2 million via a company, such as a British Virgin Islands (BVI) company, could be affected by these rules. A BVI is a regularly used byword for an offshore company.
The British government believes not everyone is paying their fair share of tax on residential property and the change in the treatment of high-value residential property, particularly that owned by a 'non-natural person' - a term for individuals buying property not in their own name - has been proposed. This targets those who are avoiding paying stamp duty by using companies to buy expensive residential properties.
The new taxes will apply at three stages: on a purchase; during the period of ownership; and on a sale. These taxes are currently restricted to purchases of properties worth more than GBP2 million.
British government estimates put the number and value of residential properties in Britain registered as a 'non-natural person' property at about 5,000 homes, worth about GBP25 billion. The total value transferred in 2011 was GBP1.6 billion - about 500 homes. These figures include properties owned by both Britain-domiciled and non-residents.
There will be a consultation period over the proposed change, followed by draft legislation in the autumn before the ruling is to come into effect next April. This means there is a window of opportunity for those affected to rethink their tax options and restructure investments.
'Given the attractiveness of London real estate as an investment option and the fact that a typical ownership structure would be via a company, the impact of these new rules is potentially very far-reaching,' Katie Graves, wealth planning partner at Withers Hong Kong, said.
'This policy will have a profound effect on tax planning, whether you are a Hong Kong couple with a property in London or an expatriate with a reasonable British property portfolio, and in many cases will require action to restructure existing arrangements.'
However, Graves advised investors to proceed with caution and not to overreact. She said that until the draft legislation was made available in the autumn, 'non-natural person' property owners should avoid any rush to restructure. Not everyone's circumstances were the same, so it could end up having worse consequences, she said.
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