Further changes to the taxation of UK residential properties held in corporate structures
By Neil Chadwick, RL360° Technical Marketing Manager
In the 2014 UK Budget, George Osborne announced that there would be an extension of the Annual Tax on Enveloped Dwellings to include properties valued at £1m or more from 2015 and then £500k or more in 2016.
One of the intended purposes of the original legislation was to force those perceived as avoiding their UK tax liabilities by owning UK properties through a corporate vehicle, to transfer the properties into individual ownership and as such bring them within the scope of UK Inheritance Tax and a possible 40% tax charge on death.
For those who still value the secrecy/convenience that corporate ownership affords, there are increased levels of stamp duty, an annual tax and finally capital gains tax on sale.
If we simply look at the annual charges, they alone are pretty significant:
Taxable value of property
Annual chargeable amount
|£500k - £1 million||£3,500 (2016)|
|£1 million - £2 million||£7,000 (2015)|
|£2 million - £5 million||£15,400|
|£5 million - £10 million||£35,900|
|£10 million - £20 million||£71,850|
|Greater than £20 million||£147,750|
The 'chargeable period' runs from 1 April to 30 March of each year and is index linked to the Consumer Price Index.
Now, some people may argue that anyone with a £2m plus UK property held through a corporate vehicle deserves to pay these charges however, once the threshold is reduced to £500k and above, it suddenly starts to have an impact on those who could be viewed as being considerably less wealthy.
After all what is the average price of a flat in London these days and more to the point , what will it be worth in 2 years’ time?
For this reason holding the property through a corporate vehicle may no longer be an option and, instead, owners could look to try and mitigate their probable exposure to UK inheritance tax in the future by insuring against.
One possible solution would be to take out a whole of life assurance policy with an index linked sum assured sufficient to cover the anticipated UK tax liability on death. In many cases, the annual premium costs of the cover may well be less than the costs associated with keeping the property within the corporate vehicle although, this clearly depends on the age and health of the individual.
Should the individual then sell the UK property and therefore, no longer have a requirement for the policy, then depending on the length of time it’s been in force and the level of premiums paid, it could also have a residual cash value on surrender.
Please note that every care has been taken to ensure that the information provided is correct and in accordance with our current understanding of the law and Her Majesty’s Revenue and Customs (HMRC) practice as at April 2014.