A crackdown on stamp duty and tax avoidance measures in this
year’s UK budget could make wealthy non-doms think twice about
investing in the London property market.
The UK chancellor, George Osborne, said
non-resident companies will now have to pay capital gains tax (CGT)
on the sale of housing and also hit companies with 15% stamp duty
on the sale of property worth more than £2m ($3.16m).
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From now on those who were able to avoid
paying stamp duty on the purchase of a home by purchasing shares in
a company that holds the property will find this avenue blocked
off.
Osborne also announced an annual charge will
be levied on such structures and raised the possibility of
retrospective tax charges.
Such schemes had appealed to non-doms who were
also able to avoid inheritance tax by moving the property into the
ownership of a foreign-based entity and therefore out of the remit
of UK inheritance law.
Louise Somerset, tax director at RBC Wealth
Management said: “It seems logical that anyone making a profit on
the sale of a UK asset should pay UK tax. However, the
potential knock-on consequences could be huge.
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By GlobalData“Advisers will be concerned that this could be
the beginning of an unwelcome attack on the acquisition of UK
assets by foreign residents.
“It is to be hoped that the plans are very
limited in their application.”
Targeting non-doms
Damian Bloom, a partner who specialises in tax
and trusts at law firm Berwin Leighton Paisner (BLP), pointed out
that many non-doms didn’t want to hold property in their names for
reasons other than tax.
He added that the possibility of sidestepping
CGT and inheritance tax had contributed to a very attractive regime
for non-doms that was now being dismantled.
Michael Wistow, head of tax at BLP, said: “The
chancellor is slamming the door in the face of foreign investors
coming to the UK before they even book their air ticket.
“His moves to stop people owning residential
properties via corporate vehicles, however populist the intent,
will have serious perverse consequences far beyond their intended
targets.”
Bloom added that the purchase of a property in
the UK is the first step for many non-doms who later go on to
invest heavily in the country
Tax avoidance measures
The chancellor also announced the intention to
introduce a General Anti-Avoidance Rule (GAAR) that would allow
revenue officials to deem certain tax avoidance schemes
impermissible if they were judged to be abusive.
Private banking commentators welcomed the idea
behind the move, but warned of potential unintended
consequences.
Christine Ross, group head of wealth planning
at SGPB Hambros, said: “Our hope is that it does not inadvertently
catch reasonable, non-aggressive, tax planning.”
With a consultation to be held before any details are confirmed,
many warn that the devil will be in the detail.
Katharine Arthur, tax partner at MHA MacIntyre
Hudson, said: “An advisory panel independent of HMRC must be
appointed to determine what is abusive and what is not.”
Others urged the government to allow companies
to submit their tax plans to HMRC for pre-approval, rather than
face the risk of having them retrospectively rejected.
BLP’s Michael Wistow said the plan risked
damaging certainty in the UK legal system, and political pressure
to toughen the plans could later prove irresistible.
