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UK Budget 2012 - 'a sting in the tail?

By Attracta Mooney

British residential property worth more than £2 million (€2.4 million) will be subject to a new 7% stamp duty charge, while a 15% levy will apply to such properties brought via a company.

These were among the measures most likely to affect the very wealthy in the UK that were announced as part of Budget 2012.

Described as “a real sting in the tail” by Sophie Dworetzsky, partner in the wealth planning team at international law firm Withers, the 15% stamp duty charge is widely seen as an attempt to crack down on tax duty avoidance.

The move is likely to badly hit “the high-end London property market”, reckons David Kilshaw, tax partner at KPMG.

“Most overseas nationals bought their UK property via a company not to save the relatively modest stamp duty, but to avoid inheritance tax. Whereas stamp duty would be £1 million on a £20 million home, that paled into insignificance when compared to the 40% inheritance charge which would be £8 million on death,” he said.

“Now a company is not as attractive — the stamp charge rises three fold to over £3 million. There will also be an annual levy of up to £140,000.”

The new charge could see overseas nationals “think twice before they buy in London”, he added, describing it as a “mansion tax with a capital M”.

The smaller stamp duty charge is “apparently an alternative to a mansion tax”, said Jacqueline Almond, partner and head of the wills, trusts and probate team at IBB Solicitors. But the increase will also hit wealthy buyers, immediately adding £40,000 to the cost of a £2 million property, she warned.

However, announcing the measures, British chancellor George Osborne said: "It is fair when money is tight, and so many families could do with help, that those buying the most expensive homes contribute more."

The chancellor “was keen to point out” that the wealthy should “pay more tax and the poor pay less”, said Tim Gregory, a partner in the private wealth group at accountants Saffery Champness. But the increase in stamp duty is “bound to” result in “more interest” in new ways to avoid the tax, he added.

The Treasury expects the move to raise £150 million in the next financial year, rising to £300 million by 2016-17. There will also be a consultation on a possible charge for those properties already held in such an arrangement.

“Coupled with the announcement that capital gains tax will apply to properties held in 'overseas envelopes', this does indeed mark a new basis for taxing foreign holders of UK properties. At the very least, significant and speedy restructuring of offshore property holding structures will be needed,” said Dworetzsky.

The UK is also to have a general anti-avoidance rule, with a consultation planned. But this needs to “not inadvertently catch reasonable, non-aggressive, tax planning”, said Dominic O'Connell, head of tax, trust and estate planning at Coutts.

The GAAR, combined with talk of retrospective legislation to block stamp duty planning, “marks a rather seismic shift in the approach to tax planning, with taxpayers and advisers needing to be very alert to the risk of planning being unwound after the event”, warned Dworetzsky.

But there was also some good news for family businesses – corporation tax will fall to 24% next month and to 22% by 2014.

“This will be encouraging for those who own shares in larger companies, and should attract further commercial investment in the UK,” said Gregory.

As expected, the chancellor also got rid of the 50p tax rate – this will now stand at 45%.

“The news that the 50% tax raised only £1 billion (just a third of what was forecast), against all the missed opportunities for investment that the rate led to, has shown that a higher tax rate is clearly not good for the nation as well as being disliked by the wealthy,” added Gregory.