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UK Autumn Statement December 2014 – Property Tax Aspects

This note highlights the key points relating to UK property taxation following yesterday’s Autumn Statement which may be of interest or relevant to your circumstances. It only deals with property taxes. Please contact David Anderson at Sykes Anderson Perry to discuss any of the matters below. Contact details are at the end of this note.

Stamp Duty Land Tax (SDLT) – complete overhaul

The Government iscompletely changing the SDLT system and the new rules are coming into effect immediately. From 4 December 2014 different SDLT rates will apply to the slices of the purchase price within a particular range rather than one flat rate to the whole of the purchase price. The rates will be as follows:

£125,000 – no tax
Between £125,000 and £250,000 – 2%
Between £250,000 and 925,000 – 5%
Between £925,000 and £1.5 million – 10%
Above £1.5 million – 12%

So, for example, if you purchase a property worth £450,000, your SDLT liability will be as follows:

No tax on the first £125,000
£2,500 on the next £125,000 (2%)
£10,000 on the top slice of £200,000 (5%)
Total SDLT liability - £12,500

Under the old system, SDLT would have been payable at 3% on the whole of the purchase price and would have been £13,500.

If the purchase price was, say, £800,000, the tax under the new system will be £30,000, which is £2,000 less than the £32,000 tax bill under the current system.

On the other hand, purchasers of properties worth around £1 million and above will see their tax bill increase. Say, you purchase a property for £2 million:

No tax on the first £125,000
£2,500 on the second £125,000
£33,750 on the third slice of 675,000 (5%)
£57,500 on the fourth slice of £575,000 (10%)
£60,000 on the final £500,000 slice (12%)
Total SDLT liability will come up to £153,750

Under the current rules you would have paid £100,000(5% of the purchase price) or £300,000 (15% of the purchase price) if the property is purchased through a company and no reliefs are available (e.g. the property is for personal use).

This is a big change which will be welcomed by buyers of medium to low value properties. Tax bills of high value property buyers will on the contrary, significantly increase.

The good news for people buying at this higher level is that there was no mention of a mansion tax being introduced.

Important:Transitional rules will allow buyers who have already exchanged on a home but not completed before 4 December 2014 to choose whether to pay SDLT under the existing or new rules. If you have already exchanged contracts, make sure  your conveyancer uses the system which results in a lower tax bill.

TIP– Under the old system the punitive level of 15% for properties purchased in a company was substantially higher than the normal 7% level. This is more marginal now due to the higher level of 12% applying to the banding over £1.5m so becomes less of a deterrent to company structures.Even with a company purchase standard rates could apply if a relief is available e.g. the property is bought and used as a buy to let.

Annual Tax on Enveloped Dwellings (ATED) – rates increase

The Chancellor has announced an increase in the ATED rates by 50% above inflation.

Value of the property Current ATED rates ATED rates
from 1 April 2015
Over £2 million - £5 million £15,400 £23,350
Over £5 million - £10 million £35,900 £54,450
Over £10 million - £20 million £71,850 £109,050
Over £20 million £143,750 £218,200

In addition to the above rates increase, ATED will be extended to lower value properties. As announced in the budget earlier this year, from 1 April 2015there will be  a £7,000 ATED charge on properties between £1 and 2 million.

Important:The increase in the rates is very significant and will particularly be felt by owners with properties on the higher end of the scale.

TIP - High value property owners who have been paying the charge are strongly advised to review their property structures now in light of these changes. The cost has to be measured against the potential inheritance tax and other savings that such structures allow. “De-enveloping” could take you outside of this ATED charge and other structures including trusts and QNUPS should be considered.

Capital Gains Tax on Non-Residents

In advance of the Autumn Statement the Government published a summary of responses to the consultation on the new extended capital gains tax (CGT) which will apply to non-residents selling UK residential property from April 2015. The key points are:

  • The new CGT charge will apply only to the gain accrued from April 2015. There will either be rebasing or time apportionment of the whole gain.
  • The gain will need to be reported to HMRC and tax paid within 30 days of the completion of the sale.
  • Companies will be taxed at 20% to mirror UK corporation tax rate. Indexation allowance may be available.
  • The CGT which is charged in connection with the annual charge on enveloped dwellings (ATED-related CGT) will continue to apply. If the gain is within both the new CGT and ATED-related CGT, the ATED-related CGT will prevail.
  • Individuals will be charged at 18 or 28%, depending on total income and gains for the year. The annual exempt amount (around £11,000) will be available and it will be possible to offset losses made on UK residential property against gains made on UK residential property.
  • The rate for trustees will be 28%. The annual exempt amount will be half of that available to individuals. This is in line with the current treatment of UK trustees.
  • Main residence relief rules will be amended but only in relation to non-residents disposing of UK residential properties and UK residents disposing of residential properties located outside the UK. Such individuals will be able to treat a property as their main residence in a tax year if they reside in that property for 90 days in that year.

TIP – Structuring your UK property purchase will need to factor in the above considerations. For investment properties a company may still be more efficient as the CGT rate is lower than for individuals. For a second home, it may be possible to claim main residence relief but this will have to be very carefully considered in conjunction with the statutory residence test.

4 December 2014

David Anderson Solicitor Advocate and Chartered Tax Adviser, Barrister (unregistered)