A number of important changes have or are about to take place as regards the taxation of residential property in the UK – both in terms of valuable London properties and other residential property. As with a number of other areas of taxation, the pace of change is breath-taking. This bulletin provides an overview of those changes.

1. BEFORE 21 MARCH 2012

Frequently, the very expensive properties are bought by people with overseas connections –being non-UK resident and/or non-UK domiciled. Before 21 March 2012, things were much easier for such people. For example, back in the pre March 2012 days, a non-UK domiciled and non-UK resident individual who wished to purchase a residential property in the UK would be advised to do so via an offshore limited company that was registered abroad. The individual would be the main shareholder in that company.

This approach offered the following advantages:

  • No stamp duty would arise
  • Because the individual was non-UK domiciled (as well as being non-UK resident) and owned shares in an offshore company, those shares would be regarded as excluded property for IHT purposes
  • Because the owner of the property was non-UK resident (as well as being non-UK domiciled) there would be no CGT on a later disposal of that property
  • Even if the individual occupied the property from time to time as a residence issues, such as control and management of the company, benefits in kind taxation and the question of shadow directors would not generally arise in respect of an individual who is a non-UK domiciled and non-UK resident individual

The Budget 2012 attacked the benefits of this structure in a number of ways:-

(1) Stamp Duty Land Tax (SDLT)

A 15% rate of SDLT was introduced from 21 March 2012 on the acquisition of UK property where:-

  • the purchase price for a single dwelling exceeds £2 million and
  • the purchaser is a non-natural person (i.e. a company or a partnership with a company as a partner/member)

(2) Annual tax on enveloped dwellings (ATED)

ATED is an annual tax which applies to:

  • Single dwellings with a value of over £2m
  • Which are owned by non-natural persons (e.g. companies)

The amount of ATED payable depends on the value of the property and ranges from £15,400 (£2m value) to £143,750 (value of more than £20m).

(3) Capital gains tax (CGT)

With effect from 6 April 2013, where an offshore company sells a residential property that is within the ATED regime, it will be subject to CGT at 28% on any capital gains that have arisen post 5 April 2013.

(3) Reliefs

There are a number of reliefs from these taxes. For example, a relief from ATED (in (2) above) and CGT (in (3) above) applies to residential property that is:-

  • let commercially to third parties or
  • held for development as part of a property developer’s trade


One way in which ATED could be avoided would be to ‘de-envelope’ the property from the corporate ownership into individual ownership. Whilst this would avoid the ATED charge in (2) above and the CGT charge in (3) above, it would then mean that as the individual would then own a UK situs property, that property would be subject to inheritance tax (as a UK situs asset) and so other planning for this may be necessary.

There would be a tax cost to such a de-enveloping exercise:-

(a) Where the offshore property shares are owned by an offshore trust, a CGT charge could arise under section 87 company TCGA 1982.

(b) In a case where the property is owned by a company and there is no trust, the company would need to be liquidated and the property transferred into the name of the non-resident individual. Provided there is no assumption of debt used to buy the property there would be no SDLT. However, there could be CGT (under (3) above) on any capital gain that has arisen since 5 April 2013 to the date of transfer.


A new wave of property taxation was announced in the Budget 2014 as follows:-

(i) The threshold for the 15% SDLT rate was reduced to £500,000 from 20 March 2014.

(ii) From 1 April 2015, properties valued at more than £1m (and not the previous £2m) will be required to pay an annual ATED charge of £7,000.

(iii) From 1 April 2016, properties valued between £500,000 and £1m will be subject to an annual ATED of £3,500. Also future capital gains will be subject to CGT.


Currently, the general rule is that persons who are non-UK resident (and not temporarily non-UK resident) do not pay CGT. The sale of a UK property by a non-UK resident individual would not therefore give rise to CGT.

However, the Government has consulted on this. The consultation, which closed in June, looked at two issues:-

(a) The possibility of charging CGT on all non-UK resident persons (including individuals) who dispose of UK property that is used (or suitable for use) as a dwelling. There would be no relief for property used for commercial purposes e.g. residential lettings.

(b) A tightening in the entitlement to principal private residence (PPR) relief where the owner has more than one home. Currently, an individual who owns more than one residence and occupies both as a residence can elect which one qualifies for PPR relief.

The Government wants to remove this election rule and has put forward two possible future approaches on PPR relief as follows:-

(i) PPR relief is given in respect of the property which is demonstrably the person’s main residence i.e. where they and their spouse/family live, the property shown on the electoral role etc.

(ii) PPR relief is given to the property in which the individual has been present for most of any given tax year.

The outcome of the consultation was announced in November 2014 and is covered here.


From April 2014, the final ownership period exemption has reduced from 36 months to 18 months where a property has been a qualifying private residence at some time during an individual’s period of ownership. The question is now, in light of the other changes occurring, whether there will be any further restrictions in this area.


There is the possibility that a mansion tax will be introduced in the future. This will depend on which party comes to power in next year’s General Election.

The mansion tax will apply to dwellings valued at over £2 million and would be based on a banding structure. Labour propose to apply the same bands that apply for ATED.


Given that a considerable amount of wealth of many clients is held in residential property(ies) this is an obvious revenue target for the Government.


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