Changes to UK property taxes to take effect in April
People have three months to change offshore ownership of British real estate to avoid fees
As expected the draft legislation was published on December 11 outlining the new taxes and charges, which will have to be paid by offshore companies that own property in Britain. There have been some significant changes from the consultation paper, which was circulated last year. There is still a chance that there will be further changes before publication of the actual legislation in April, but no further surprises are expected. Property owners should plan accordingly.
The main features of the proposed legislation will affect properties that either are, or will become, valued at more than £2 million (HK$25 million) and owned by "non-natural persons". This is a reference to companies, partnerships, funds and the like.
Previously many buyers of British property have chosen to register their real estate in the name of an offshore company to avoid British inheritance tax, which would otherwise be charged at 40 per cent of the property's value, after allowances, upon the owner's death. As a company never dies, the property becomes the shares of the company, which is a non-British asset and therefore not subject to Britain's inheritance tax as long as the owner is not domiciled in Britain.
Owners living in Britain are subject to inheritance tax on their worldwide assets, so the tax catches the whole estate. Many British expatriates will remain domiciled in Britain despite living abroad for many years. Offshore company ownership also facilitated the avoidance of stamp duty as any subsequent sale of the property could be effected by a transfer of the shares in the company, leaving title to the property in Britain unaltered. This would mean the incoming purchaser avoided stamp duty and allowed the seller to charge more or made it easier to sell as it was cheaper for the buyer, or a bit of both.
Offshore companies that own property worth more than £2 million will now be faced with: an annual charge of a minimum of £15,000 and a maximum of £140,000, depending on the value of the real estate. This is the annual residential property tax.
Capital gains tax, which was previously not paid by non-Britain resident sellers whether they were individuals or companies, will be charged on the resale of a property a rate of 28 per cent.
New offshore company purchasers will pay stamp duty at 15 per cent, while people will pay stamp duty at the bargain rate of only 7 per cent.