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How do I invest in over £2m UK property post April 2013

From April 2013, the UK government introduced three major changes on UK property that is OVER £2mand these include:

 

·        The introduction from 21 March 2012 of a 15% rate of SDLT on acquisitions of residential dwellings costing more than £2 million by certain non-natural persons (as mentioned, companies, partnerships including a company and collective investment vehicles);

·        From 1 April 2013, an annual charge on residential property (“ARPT”) owned by non-natural persons; and

·        From 6 April 2013, the extension of Capital Gains Tax (CGT) to gains on the disposal of residential property by non-resident companies and others (but not individuals). CGT is a tax on the gain or profit made when someone sells, gives away or otherwise disposes of assets such as shares or real property..

 

Existing structures are faced with the decision to dismantle an existing corporate structure and restructure the investments. New investors have to consider new tax efficient ways of investing in UK property. Every situation is different and many other factors will be important including exposure to inheritance tax, capital gains, privacy, asset protection and the likelihood and timing of a future sale. Even if the decision is made to dismantle an existing structure, the full tax consequences of the dismantling need to be considered very carefully. In many cases unexpected taxes can arise as part of the liquidation process itself, including stamp duty land tax and CGT. By careful planning at an early stage, it may be possible to avoid these.

 

For existing property structures the tax agents or investors should consider:

 

1. Get a valuation

 

The annual tax will apply on properties worth more than £2m on 1 April 2012. The amount of the tax increases in steps at £5m, £10m and £20m, so the first step will be to determine which band your property falls into, and for properties on the cusp of a higher band to be able to justify the valuation to HM Revenue & Customs. It is very important to obtain two reliable, and ideally professional, valuations of the property as soon as possible. The first valuation must be at 1 April 2012 and the second (if necessary) at 5 April 2013. If the April 2012 valuation is under £2 million then the ARPT will not apply. In that case the company will also avoid the new CGT rules and no valuation for 6 April 2013 will be necessary.

 

The property will need to be valued again on 1 April 2017. If it is then valued at over £2 million, the ARPT will start to apply from 6 April 2018, as will a CGT charge on a sale after that date.

 

 

2. Speak to your bank

 

For property owners with mortgages looking to take their properties out of the company wrapper, it will not be possible to change the legal ownership of the property without consent from the mortgagor. If any change of ownership is contemplated before April 6 2013, this should be done without delay.

 

3. Speak to your landlord

 

For owners of leasehold flats any change in ownership is also likely to require the consent of the landlord to be effective. While this is unlikely to be refused, it can take some time to process and the landlord may require references, deposits and guarantees.

 

4. Check your facts

 

For some homeowners, particularly those with more complex ownership arrangements, the annual tax and capital gains tax charge may only be the tip of the iceberg and there may be significant additional charges associated with the winding up of existing structures.

 

5. Own the property direct/ or through a trust

The new CGT charge does not apply to personally-owned properties or those owned by trusts. It may therefore be sensible to move properties out of corporate structures and into personal ownership or direct trust ownership. CGT can then be avoided altogether if the individual or trustees are eligible for main residence relief or are not UK-resident for tax purposes.

 

 

 

For those looking to purchase new properties for more than £2m, the two new charges and an increased stamp duty land tax rate of 15 per cent on purchases by companies and collective investment schemes will mean that many will wish to own properties directly. However, for some, particularly non-resident owners, this will mean an exposure to UK inheritance tax that would not have arisen otherwise.

 

1. Check you don’t benefit from a relief

 

Properties purchased as part of a rental, development or trading business are not caught by the new taxes and can be purchased by companies without incurring the higher stamp duty land tax charge and new taxes.

 

2. Consider your exposure to inheritance tax

 

Where properties are purchased outright, the potential liability to inheritance tax can is reduced where the purchase is financed by a mortgage. For those concerned about a charge to inheritance tax, life insurance can offer further peace of mind.

 

3. Get married

 

Assets passing between married couples or civil partners on death are exempt from inheritance tax, so getting married could be the best inheritance tax planning for some homeowners.

 

4. Use a nominee

 

By employing a nominee company to hold the legal title and be registered at HM Land Registry, individual owners can still preserve their privacy.

 

5. Own the property direct/ or through a trust

The new CGT charge does not apply to personally-owned properties or those owned by trusts. It may therefore be sensible to move properties out of corporate structures and into personal ownership or direct trust ownership. CGT can then be avoided altogether if the individual or trustees are eligible for main residence relief or are not UK-resident for tax purposes.

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