high value residential properties – the new rules
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www.blplaw.com Page 2 © Berwin Leighton Paisner
Speakers
Paul WhiteheadDDI: 020 3400 2332
Email: paul.whitehead@blplaw.com
Damian BloomDDI: 020 3400 2262
Email: damian.bloom@blplaw.com
www.blplaw.com Page 3 © Berwin Leighton Paisner
Overview
1. What prompted the changes?
2. What were the changes?
3. Impact of the consultation document
4. New purchases
5. Existing structures
www.blplaw.com Page 4 © Berwin Leighton Paisner
What’s the policy point?
• 4 policies…
• SDLT avoidance
• targeted anti-avoidance (e.g. sub-sale relief)
• new rules for properties > £2m
• credibility of SDLT regime
• encourage de-enveloping
• equalise taxation of residents and non-residents?
• …
or 5?
• tackle IHT avoidance?
www.blplaw.com Page 5 © Berwin Leighton Paisner
Four FIVE new charges for £2m+ residential property
Now:
• 7% SDLT on purchases by individuals
• 15% SDLT on purchases by ‘non-natural persons’
From April 2013:
• annual charge for non-natural persons (UK and non-UK)
• CGT extended for non-resident non-natural persons
• ? CGT on disposals of indirect interests in property
www.blplaw.com Page 6 © Berwin Leighton Paisner
Who are ‘non-natural persons’?
• Companies (UK & non-UK) - so REITs, pension funds, banks
• Collective investment schemes (UK & non-UK) - so JPUTs, unittrusts, funds
• Partnerships with any of above as a partner - but partnershipscomprising people only are OK
CGT only
• Trustees / foundations (not bare trusts / nominees)
• Personal representatives
• Other property holding foreign entities
www.blplaw.com Page 7 © Berwin Leighton Paisner
Annual charge
• Valuations every 5 years, with self certification & prior agreement
• Revaluations on change of ownership
• Costs - to increase annually in line with CPI
• Tax collection:
• joint and several liability: investors, beneficial owners,shareholders, occupiers?
• impact on tenancy agreements?
• impact on beneficiaries in occupation?
• Multiple interests = multiple charges – freehold and leasehold
£2m to £5m £15,000
£5m to £10m £35,000
£10m to £20m £70,000
£20m+ £140,000
www.blplaw.com Page 8 © Berwin Leighton Paisner
Developers and investors
• Developer company excluded if:
• acquires land in course of “bona fide” property developmentbusiness;
• for sole purpose of developing and reselling land; and
• the company has carried on that business for two years beforepurchase
• Care homes, hotels, student accommodation excluded
• Possible extension of exclusions to widely held property(e.g. collective investment schemes, unit trusts)
www.blplaw.com Page 9 © Berwin Leighton Paisner
Annual charge: consultation document
• “Government aims to target the annual charge atthose circumstances where tax avoidance may be asignificant factor”
• Intended to encourage de-enveloping “therebyensuring that the onward sale of the property issubject to SDLT”
• “To what extent do you think the impact of the 15per cent SDLT charge will differ from the annualcharge? Should the Government continue with bothmeasures once the annual charge is in place?”
www.blplaw.com Page 10 © Berwin Leighton Paisner
Capital gains tax
• > £2m only
• No rebasing: “one year” to plan instead (!)
• Applies to all property regardless of use – employers
• Gain pro-rated where change of use
• Rates: CT or CGT, but unlikely to be a new rate
www.blplaw.com Page 11 © Berwin Leighton Paisner
CGT: consultation document
• “The aim of the CGT extension is to support theannual charge by creating a further deterrent toenveloping and to create more equal tax treatmentbetween UK residents and non-residents.”
• “where [non-UK resident non-natural persons]choose to de-envelope a property, a non-residentdoes not have a clear financial advantage over a UKresident”
www.blplaw.com Page 12 © Berwin Leighton Paisner
The Fifth Element: CGT on indirect property holding
• New CGT on disposal of assets where > 50% of thevalue derives from UK residential property
• Shares, interests in securities, options
• Applies to disposals of interests of any value?
• Intentional, not aspirational, unless impossible
• Why CGT on indirect interests, rather than SDLT?
www.blplaw.com Page 13 © Berwin Leighton Paisner
Reliefs and double taxation
• Principal Private Residence relief – should still beavailable, e.g. for disposals by non-resident trustees
• Interaction with existing provisions
“will be considered with the aim of avoidingunnecessary complexity and to ensure a sensibleprioritisation of charging provisions”
• Wide range of potential double charges
www.blplaw.com Page 14 © Berwin Leighton Paisner
Double taxation
OffshoreCo
Section 13TCGA
Section 13TCGA
OffshoreCo
OffshoreTrust
SETTLOR
Section 86TCGA
BENEFICIARYSection 87 TCGA
www.blplaw.com Page 15 © Berwin Leighton Paisner
Overview
Residential
Property
New
Buyers
Developers / Investors
Existing
Structures
Private clients
• existing anti-avoidance rules• new CGT charge• annual chargevs• IHT protection• restructuring consequences
• new CGT charge• annual chargevs• restructuring?• carve out?
• 7% SDLT• IHT mitigationvs• 15% SDLT• new CGT charge• annual charge
• 15% SDLT• new CGT charge• annual chargevs• structuring?• carve out?
www.blplaw.com Page 16 © Berwin Leighton Paisner
Corporate ownership: old and new
Offshore company: old rules Offshore company: new rules
• 5% SDLT • 15% SDLT
• No CGT on disposal • CGT on disposal
• No annual charge • Annual charge
• no IHT (for non-doms) No change
• 20% tax on rental income
• confidentiality
• limited liability/asset protection
• succession
www.blplaw.com Page 18 © Berwin Leighton Paisner
So what does that mean?
OffshoreCo
OffshoreTrust
OffshoreCo
OffshoreTrust
www.blplaw.com Page 19 © Berwin Leighton Paisner
So what does that mean?
OffshoreCo
OffshoreTrust
OffshoreCo
OffshoreTrust
Nothing!
www.blplaw.com Page 20 © Berwin Leighton Paisner
So what does that mean?
OffshoreCo
OffshoreTrust
OffshoreCo
OffshoreTrust
Nothing! CGT / AC
www.blplaw.com Page 21 © Berwin Leighton Paisner
So what does that mean?
OffshoreCo
OffshoreTrust
OffshoreCo
OffshoreTrust
Nothing! CGT / AC CGT
www.blplaw.com Page 22 © Berwin Leighton Paisner
So what does that mean?
OffshoreCo
OffshoreTrust
OffshoreCo
OffshoreTrust
Nothing! CGT / AC CGT CGT / AC
www.blplaw.com Page 23 © Berwin Leighton Paisner
So what does that mean?
OffshoreCo
OffshoreTrust
OffshoreCo
OffshoreTrust
Nothing! CGT / AC CGT CGT / AC
IHT No IHT IHT No IHT
www.blplaw.com Page 24 © Berwin Leighton Paisner
The Good, the Bad & the UglyPersonal ownership (no impact)
Direct trust ownership: PPR available
Direct non-UK trust ownership: no PPR
Non-U
Kco
ow
nersh
ip
NR/ND shareholder
NR/UKD shareholder
UKR/ND shareholder
UKR/UKD shareholder
Trust
and
com
pany
ow
nersh
ip
NR/ND / dead settlor; NRND beneficiaries
NR/UKD / dead settlor; NR/UKD beneficiaries
NR/ND / dead settlor; UKR beneficiary – NR beneficiaries
NR/ND / dead settlor; UKR beneficiary – no NR beneficiaries
www.blplaw.com Page 25 © Berwin Leighton Paisner
What are the variables?
• Structural variable
• Legislative variables
• Planning variables
www.blplaw.com Page 26 © Berwin Leighton Paisner
Structural variables
high gain
low gain
single
married
young
old / ill emigratingliquid
confidentiality
no capital
accepts future tax
governance
debt
local issues
PPR
domicile
succession
residence
rental income
www.blplaw.com Page 27 © Berwin Leighton Paisner
Structural variables
high gain
low gain
single
married
young
old / ill emigratingliquid
confidentiality
no capital
accepts future tax
governance
debt
local issues
PPR
domicile
succession
residence
rental income
www.blplaw.com Page 28 © Berwin Leighton Paisner
Structural variables
high gain
low gain
single
married
young
old / ill emigratingliquid
confidentiality
no capital
accepts future tax
governance
debt
local issues
PPR
domicile
succession
residence
rental income
www.blplaw.com Page 29 © Berwin Leighton Paisner
Structural variables
high gain
low gain
single
married
young
old / ill emigratingliquid
confidentiality
no capital
accepts future tax
governance
debt
local issues
PPR
domicile
succession
residence
rental income
www.blplaw.com Page 30 © Berwin Leighton Paisner
Legislative variables
Exclude investors
Tax on disposals
of shares in property
holding companies
Effective set off
Exclude fundsCheck the box
7% SDLT
Annual charge
taxation of
non-residents
15% SDLT
Rebasing /
hold – over
New CGT provision –
defer or drop?
Restrospective
PPR
www.blplaw.com Page 31 © Berwin Leighton Paisner
Legislative variables
Exclude investors
Tax on disposals
of shares in property
holding companies
Effective set off
Exclude fundsCheck the box
7% SDLT
Annual charge
taxation of
non-residents
15% SDLT
Rebasing /
hold – over
New CGT provision –
defer or drop?
Restrospective
PPR
Planning variables
• Do nothing
• Liquidation for non-res shareholders
• Clear out gains to non-res beneficiary
• Rebase
• No magic bullet for res beneficiary occupiers
• Debt / insurance
• Partnerships
www.blplaw.com Page 32 © Berwin Leighton Paisner
www.blplaw.com Page 33 © Berwin Leighton Paisner
Existing structure: corporate ownership(UK RND shareholder)
Tax Issue
CGT CGT on disposal of property (> £2m) bycompany (post April 2013)
Corporate gain attributed to shareholder (preand post April 2013, potential double charge)
28% on disposal of shares by shareholder(subject to remittance basis)
IHT Nil
Income tax If let 20% on company and income tax onshareholder either through anti-avoidance, ordividend, with credit for 20% paid by company
Corporationtax
N/A (see 20% income tax charge above if let)
Annualcharge
£15,000 to £140,000 if property value > £2m
OffshoreCo
www.blplaw.com Page 34 © Berwin Leighton Paisner
Keep or Kill?
Non-UK Co
UK-res
Non-dom
Low (?) gain
single
old / ill
liquid (AC)
www.blplaw.com Page 35 © Berwin Leighton Paisner
Keep or Kill?
Non-UK Co
Non-res
Non-dom
high gain
married
young
limited cash
www.blplaw.com Page 36 © Berwin Leighton Paisner
Keep or Kill?
Non-UK Co
Non-res
Non-dom
low gain
single
old / ill
liquid (AC)
acceptsfuture CGT
www.blplaw.com Page 37 © Berwin Leighton Paisner
Existing structure: trust ownership (PPR available)
OffshoreTrust
Tax Issue
CGT CGT on disposal of property (> £2m) bytrustees (post April 2013)
Beneficiaries potentially chargeable to tax ontrust gains, but should be set off by PPR relief
IHT Discretionary trust: 10 yearly charge on valueof trust assets and charge on distribution
Qualifying interest in possession: charge ondeath of life tenant
In estate of settlor if settlor / spouse interested
Income tax 50% (45% from April 2013) if let
Corporationtax
N/A
AnnualCharge
N/A
www.blplaw.com Page 38 © Berwin Leighton Paisner
Existing structure: trust and corporate ownership
Tax Issue
CGT CGT on disposal of property (> £2m) bycompany (post April 2013)
On a disposal pre-April 2013, corporate gainattributed to trust and potentially chargeable onbeneficiaries / settlor
IHT Non-domiciled settlor: nil UK domiciled settlor: depends on trust
Income tax If let: 20% on company; and 50% (45% from April 2013) potentially on
settlor if UK ordinarily resident (anti-avoidance)but credit for 20% paid by company
Corporationtax
N/A (see 20% income tax charge above if let)
Annualcharge
£15,000 to £140,000 if property value > £2m
OffshoreCo
OffshoreTrust
www.blplaw.com Page 39 © Berwin Leighton Paisner
Keep or Kill?
Non-UK Co
Non-UK Trust
(non dom/dead settlor)
high gain
young / married
limited cash
non-resbeneficiaryoccupying
www.blplaw.com Page 40 © Berwin Leighton Paisner
Keep or Kill?
Non-UK Co
Non-UK Trust
(non dom/dead settlor)
high gain
Old / single
Cash resources
non-resbeneficiaryoccupying
www.blplaw.com Page 41 © Berwin Leighton Paisner
Keep or Kill?
Non-UK Co
Non-UK Trust
(non dom/dead settlor)
PPR available
young / married
UK resbeneficiaryoccupying
low gain
www.blplaw.com Page 42 © Berwin Leighton Paisner
Keep or kill?
Non-UK Co
Non-UK Trust
(non dom/dead settlor)
old / single
cash resources
UK resbeneficiaryoccupying
high gain / benefit
www.blplaw.com Page 43 © Berwin Leighton Paisner
Personal ownership
Nominee
life insurance(joint life
second death)
non-resnon-dom
Bank90%
borrowing
Offshore
UK
rent
www.blplaw.com Page 44 © Berwin Leighton Paisner
Trust ownership (direct)
Nominee
life insurance(joint life
second death)Bank
90%
borrowing
Offshore
UK
Non-UK Trust
(non dom/dead settlor)
www.blplaw.com Page 45 © Berwin Leighton Paisner
Partnership solutions
Insurance?
Nominee
non-resnon-dom
LLP
non-resnon-dom
Bank?
Offshore
UKrent
www.blplaw.com Page 46 © Berwin Leighton Paisner
Success?
• Stamp out SDLT avoidance
• Restore credibility of SDLT regime
• Encourage de-enveloping
• Equalise taxation of residents and non-residents
• Tackle IHT avoidance
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