Tax Changes Affecting Residential Properties Purchased Through Companies

The taxation of properties worth £500,000 – £2million owned by companies has been changed significantly by the budget of 19 March 2014.

The changes mirror those already in operation for companies owning residential property worth £2m or more and can be summarised as follows:

Stamp Duty Land Tax (“SDLT”)

Residential properties purchased for £500,000 or more through companies will be subject to SDLT at the rate of 15% on all contracts exchanged on or after 20 March 2014.

There are some limited exemptions to the 15% SDLT rate, for example where the property is purchased by a development company.

Annual Charge

  • From 1 April 2015, a company owning a residential property worth £1m- £2m will pay an annual charge of £7,500 per property.
  • From 1 April 2016, a company owning residential properties worth £500,000 – £1m will pay an annual charge of £3,500 per property.

There are certain exemptions from the annual charge, for example where the company uses the property as a part of a rentals business.

Capital Gains Tax (“CGT”)

  • A company owning a residential property worth £1m- £2m will be subject to CGT at 28% on any increases in value of the property from 1 April 2015.
  • A company owning a residential property worth £500k – £1m will be subject to CGT at 28% on any increases in value of the property from 1 April 2016.

N.B.1     Where the company is owned by a UK resident shareholder at the date of sale the entire increase in value of the property (from the date of acquisition to sale) is subject to CGT in the hands of the shareholder at 28%

N.B.2     Where a property owned by a non-UK resident Trust is sold great care must be taken to avoid UK resident beneficiaries being subject to CGT at 28% on the entire increase in value of the property.

What should I do?

We are happy to review your existing structure and advise you on your best options for owning the property go forward.

Your options may include:

  • Staying with the original structure and ultimately looking to sell the shares in the company which owns the property.
  • Unwinding the existing structure and having the property owned in your own name or possibly through a Trust.

N.B.3     Great care needs to be taken in unwinding companies to avoid UK resident shareholders or UK resident beneficiaries of non-UK resident trusts being subject to CGT on the entire increase in value of the property.

Structuring future property purchases

If you purchase a property in your own name then SDLT is unchanged and charged at the following rates:

  • 4%         £500k- £1m
  • 5%         £1m – £2m
  • 7%         £2m +

We are able to offer you advice on other issues which arise through owning the property in your own name including exposure to UK Inheritance Tax and UK Wills.

For further information on these tax changes please contact Michael Lindley.

Email:    mlindley@streathers.co.uk

Tel:         020 7034 4200