Autumn statement: Important measures relevant to internationally wealthy individuals and families

05 December 2014

The UK Chancellor made his Autumn Statement on 3 December 2014. Included in this were a number of measures of potential significance to wealthy non-domiciliaries and non-residents, particularly those who own residential property in the UK or may acquire such property in the future.

Notable measures included the following:

SDLT changes

Stamp Duty Land Tax (SDLT) is being reformed for purchases of residential property with effect from 4 December 2014. The details are as follows:

  • A purchaser who has exchanged contracts before midnight on 3 December 2014 may choose whether the new or old SDLT rules and rates should apply.
  • Under the new rules, rather than pay tax at a single rate on the entire purchase price, a purchaser will pay the rate applicable to the part of the price within the relevant band.
  • The rates are, as follows:
    • £0 to £125,000 - 0%
    • £125,001 to £250,000 - 2%
    • £250,001 to £925,000 - 5%
    • £925,001 to £1,500,000 - 10%
    • £1,500,001 and over - 12%
  • For residential property costing over £500,000 acquired for private use through a company or other relevant non-natural person, higher rate SDLT at 15% will continue to apply.

The new rules are targeted at answering calls for a mansion tax on higher value properties, as well as making house purchases cheaper for those at the lower end of the scale. Obviously, they will have particular impact on higher value properties likely to be purchased by internationally wealthy individuals and families.

Increase in the Annual Tax on Enveloped Dwellings (ATED)

The ATED was introduced in April 2013 as part of a package of measures to tackle perceived tax avoidance through the use of corporate vehicles to hold UK residential property.

In his Autumn Statement, the Chancellor announced that, from 1 April 2015, the charge on properties worth over £2 million held through such vehicles will be increased by 50% above inflation.

The increases will be as follows:

  • Property valued over £500,000 and up to £1 m: currently £0, will be £3,500 from 1 April 2016 (no change resulting from the Autumn Statement);
  • Property valued over £1m and up to £2m: currently £0, will be £7,000 from 1 April 2015 (no change resulting from the Autumn Statement);
  • Property valued over £2m and up to £5m: currently £15,400, increasing to £23,350 from 1 April 2015;
  • Property valued over £5m and up to £10m: currently £35,900, increasing to £54,450 from 1 April 2015;
  • Property valued over £10 million and up to £20m: currently £71,850, increasing to £109,050 from 1 April 2015; and
  • Property valued in excess of £20m: currently £143,750, increasing to £218,200 from 1 April 2015.

Clearly, these are significant increases, particularly given that this is an annual, rather than one-off, charge.

As we identified in our briefing of 4 December 2014, "Capital Gains Tax (CGT) for non-residents disposing of UK residential property: updated proposals", the substantial increases in the top rates of SDLT for residential property for properties over £925,000 and £1.5 million respectively have to a degree eroded the impact of the higher rate SDLT charge of 15% for acquisitions of residential property made by companies and certain other non-natural persons, at least for more valuable properties.

Over time, however, the increased ATED charges will begin to reinstate, and perhaps eventually even widen, the previously substantial differential in tax cost between acquiring and holding residential property directly and through a corporate vehicle.

Nevertheless, as we noted in our briefing, some property owners may consider that, overall, the other advantages of property ownership through a company, for example, inheritance tax, privacy reasons and the advantages of avoiding probate on the death of a property owner, outweigh the tax costs.

This may be even more the case when the introduction of a new CGT charge on disposals of UK residential property by non-residents, whether it is held by individuals, trustees or closely-held companies, is taken into account.

Increases in the remittance basis charge for non-domiciliaries

Increases were announced for the annual charge paid by non-domiciled individuals resident in the UK who wish to retain access to the remittance basis of taxation. These will be introduced in Finance Bill 2015 to take effect for tax year 2015/16.

  • The charge paid by non-domiciled individuals who have been UK resident for 7 out of the last 9 years will remain at £30,000.
  • The charge paid by non-domiciled individuals who have been UK resident for 12 out of the last 14 years will increase from £50,000 to £60,000.
  • The biggest change is that a new charge of £90,000 will be introduced for non-domiciled individuals who have been UK resident for 17 of the last 20 years.

The Chancellor also announced that the UK Government will consult on making the election apply for a minimum of three years.

If such a minimum period is introduced, it will be potentially significant for those individuals whose non-UK income and gains fluctuate significantly from year to year and who, previously, may have chosen to flip between the remittance basis and the arising basis of taxation (whereby one is taxed on worldwide income and gains regardless of whether foreign income and gains are remitted to the UK) in different tax years.

Someone who has been in the UK for at least 17 years would potentially be committed to a charge for the remittance basis of £270,000 (over three years) in order to access the remittance basis. They would have to consider carefully whether this would be justified by their unremitted overseas income and gains over that period.

For further information in relation to these, and other announcements made in the Autumn Statement, please speak to your usual Wragge Lawrence Graham contact.


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