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Tax tips on UK property

Recent press articles have highlighted the appeal of the London property market for wealthy Indian investors, reporting an investment into prime locations such as Mayfair and Belgravia of almost £1 billion over the last 18 months. Development opportunities as well as luxury homes and hotels are being targeted. However, particularly in light of the UK's current property tax regime, choosing the right structure is crucial.

There have been a number of recent changes to UK taxation that impact on UK property investment and influence how such properties are held. The key provisions relate to Capital Gains Tax ("CGT") and Annual Tax on Enveloped Dwellings ("ATED"). ATED was introduced in April 2013 on residential property valued in excess of £2 million that is held by both UK and non-UK "non-natural persons" (i.e. companies, collective investment schemes and partnerships with a corporate partner).

The rate of annual tax depends on the band into which the property value falls: the lowest band attracts an ATED charge of £15,400 p.a. and the highest band (property values in excess of £20 million) attracts a £143,750 p.a. charge. In addition, where ATED applies, a CGT charge of 28 per cent on gains accruing after 6 April 2013 will apply to disposals by both UK resident and non-resident non-natural persons.

Further changes were announced in the UK's March 2014 Budget:

  • From 1 April 2015, a new ATED band will be introduced for residential properties valued between £1 million and £2 million attracting an annual charge of £7,000. From 1 April 2016, an additional band will be introduced for properties worth between £500,000 and £1million on which the ATED charge will be £3,500 p.a.
  • The 28 per cent CGT charge referred to above will apply to properties falling into those new bands from 2015 and 2016 respectively.
  • The 15 per cent Stamp Duty Land Tax charge now applies to acquisitions of residential property with a value in excess of £500,000 by non-natural persons.
  • There are proposals that for disposals of UK residential property, CGT is to be charged on gains accruing from April 2015 to non-resident individual owners,trusts, companies and partners; the benefit of principal private residence relief is likely to be significantly restricted.

Where appropriate, there remain solid reasons for UK residential properties to be structured through non-natural persons - primarily asset protection and confidentiality and, for some, mitigation of UK inheritance tax - but the impact of the recent UK taxation changes needs to be factored into the structuring.

What is clear is that there is no "one size fits all" solution as each investor's residence, domicile and cross-border jurisdictional issues will differ as will their long term aims and concerns.

This article originally appeared in India Incorporated in August 2014. Find out more about the Private Client & Tax team.

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