Two-million pound houses to disappear from market?

Two-million pound houses to disappear from market?

Stamp Duty Land Tax

A law firm has claimed that proposed changes to high value property taxation means homes around the £2m mark are likely to disappear from the market.

The government last week published its consultation on measures designed to discourage ownership of high value property by any means other than outright by individuals.

This consultation was announced in the March 2012 Budget and follows the enactment of enhanced SDLT rates for high value residential property.

The consultation adds further flesh to the government’s proposals yet still leaves many important questions unanswered, says law firm Boodle Hatfield.

The new 15% rate of Stamp Duty Land Tax (SDLT) took effect from 21 March 2012 on the purchase of residential property worth more than £2million by a ‘non-natural person’ – being companies, collective investment schemes and partnerships with a corporate partner.

Whilst the 15% rate makes purchasing a home through a company less attractive, it still allows SDLT to be avoided by acquiring shares in a company which already owns the property. The government therefore intends to introduce further measures to explicitly discourage the enveloping of relevant properties in companies and other vehicles.

The consultation provides details of the annual charge (of between £15,000 and £140,000) which is to be introduced (from 1 April 2013) on homes valued at more than £2m that are held by ‘non-natural persons’.

Stephen Green, solicitor in Boodle Hatfield’s Private Client and Tax team, said: “Trustees will be relieved to see that trusts owning residential property will not be subject to this annual charge.”

The consultation also extends the scope of Capital Gains Tax (CGT) to the disposal of high value UK residential property by ‘non-resident non natural persons’ where the property is sold for more than £2m.

“The CGT charge applies more broadly than the annual charge or the 15% SDLT rate and will be payable by trustees, personal representatives, clubs, associations as well as companies and collective investment vehicles,” says Stephen.

“It is not clear, however, how the extended CGT charge will fit in with the current rules that tax gains of offshore trusts on UK resident beneficiaries. It is also unclear whether the normal CGT rates will apply or whether a new penal rate will be introduced.”

“These proposals will have significant consequences for those purchasing or owning property around the £2 million cliff edge,” said Green. “It would not be at all surprising to see homes around the £2m mark disappear from the market as the costs of acquisition and ownership soar.”