UK Budget 2016
Friday 15 April 2016
Comment by Kevin Renshaw, Director – Tax, Equiom Solutions
In recent years UK residential property has been in the spotlight and this budget was no exception.
Capital Gains Tax
For individuals disposing of most asset classes, there was good news with rates falling to 10% and 20%, but for individuals owning UK residential property the news was not so welcome, as they have been left stranded at the existing 18% and 28% rates.
Stamp Duty Land Tax
From 1 April 2016 an extra 3% Stamp Duty Land Tax (SDLT), on top of existing rates, will be charged on the purchase of residential properties that are in addition to a main residence, i.e. second homes and buy-to-lets. Isle of Man residents acquiring UK residential property in addition to an Isle of Man home will be affected, and where the cost of the UK property exceeds £1.5 million the SDLT above this amount will be at a rate of 15%. Below the £1.5 million level all scale bands have increased by 3%, giving a range of rates up to 13%.
Companies purchasing residential property will be subject to the above rates, including the first purchase of a residential property, other than those within the Annual Tax on Enveloped Dwellings (ATED) rules that pay 15% on purchases above £500,000.
On this occasion commercial property investors have not escaped unscathed, the highest rate, reserved for commercial property acquisitions over £250,000, being increased to 5%. The slab system has been replaced by scale bands, but for most investors this will be of little comfort.
Trading in UK Land and Property
For many years it has been possible for non-UK residents to trade in or develop UK land through the medium of an Isle of Man company and, providing the activities did not create a ‘permanent establishment’, the profits have been taxed in the Island at a rate of 0%, rather than in the UK at 20%.
The budget has introduced measures that provide the UK with the right to charge tax on such transactions, irrespective of the residence of the company carrying out the activities. The measures also extend to the disposal of shares in a property development company. Although the legislation will not be effective until the reading stage of the Finance Bill, a targeted anti-avoidance rule was introduced on budget day. This will ensure UK tax is payable on a sale to a connected person between budget day and the new legislation taking effect.
The Island will no longer provide a treaty shelter for UK land or property developers and going forward the profits will be taxed at UK corporation tax rates.
Finally, international investors in UK commercial property, although facing a higher rate SDLT charge can, through appropriate structuring, remain outside of Capital Gains Tax and Inheritance Tax, while limiting income tax on rent to 20%.
For more information on this subject, please contact Kevin Renshaw