Is it too late for expat property owners to act on tax changes?

By HopwoodHouse, 29 March, 2016

Stamp duty land tax (SDLT) will be increased by 3% by the government and it will mean that expats will have to pay more tax when they purchase a second residential property in the UK from April 1 2016.

Currently, SDLT for properties worth more than £1.5 m can be as much as 12%. If someone purchases a property for £3m then different rates of SDLT will paid on the first £1.5m with the second £1.5m being subject to a rate of 12%. However, from the 1st April they will be paying £90,000 more.

It is not only investors who will be subjected to an increase in the rate because there will be an additional charge of 3% on all properties purchased for more than £50,000.

The Annual Tax on Enveloped Dwelling (ATED) is a form of mansion tax that is applicable to companies that possess UK property that they do not rent out. If an expat owns a UK property within a company, they could be hit by the ATED. The charge only affected those properties valued at more than £2m but from April this year this figure will drop to £500,000 which means more properties will be hit. The amount they will have to pay on a property worth between £500,000 and £1m is £3,500.

If the SDLT charge affects you, what should you do?

Ideally, you should look to complete before 1st April 2016 but if you are unable to do this what are your other options?

If you are an expat and you are purchasing your only UK property the charge will not affect you. This means if an existing property is sold and another is purchased then there will be no fee to pay, providing another property is not owned on the same day as completion.

However, if one or more UK properties are retained when a new purchase is made then the 3% charge will be implemented. Couples that are married will be allowed only one property between them which means any additional property purchases will be subject to the 3% charge.

An option is to purchase property through family members. If the investor is a non-resident and is also non-UK domiciled then they have the ability to give cash gifts to children or grandchildren without being hit by the tax issue surrounding gifts.

This would then make it possible for the person receiving the gift to purchase a property without having to pay the 3% providing it is their only UK property. Should the expat remain UK domiciled then cash gifts will not be an issue when it comes to UK capital gains tax if they live for another seven years after they gave the gift.

A trust can be set up for those expats that are non-domiciled and this will allow their family member to purchase the property. It has been confirmed by HMRS that should a trust be set up to benefit one beneficiary then the 3% rate will not be applicable – providing it is their only property.

What about the ATED charge?

If the property is rented out to an individual who is not associated with the owner, then no charge will occur. The company, however, will have to file a return in order to claim relief for the charge. The claim must be submitted by 30th April 2016.

In time the ATED charge is likely to rise which means the best option is to move the property out of the company. Any expat considering this option should seek advice; however, the tax charges will not be too high providing the property is not mortgaged.