London, 13th December 2012 – The announcement made this week by The Treasury regarding updates to the Finance Bill affecting £2m+ home-owned properties confirmed the already widely reported annual charge ranging from £15,000 pa for properties valued £2-5m, up to £140,000 pa for £20m+ properties. This coupled with the 15% SDLT rate for certain acquisitions as well as the new CGT will influence the structures that buyers use to own UK residential property over £2m depending on whether the intention of ownership is investment or owner occupation.
There are significant positives from the Government announcements with some measures not as onerous as they could have been. Importantly, the Government has listened to action groups by including various reliefs and exemptions so genuine property businesses such as property companies, developers and investment for rent will not be liable to the annual charge, CGT or 15% SDLT.
The CGT position could have been worse but the Government has listened via the consultation process. Only capital gains accrued from April 2013 until sale will be liable to CGT at 28% and only if held by certain non-natural persons. This is far better than if gains since purchase were subject to CGT. CGT is additionally not liable for properties held as off-shore trusts.
Now that most of the detail has been released, and especially since there are more reliefs and exemptions than originally thought, existing owners should be seeking advice on the best way to hold their property. Advisors are likely to be very busy before next April. There are still advantages in owning and buying £2m+ UK residential properties in non-natural person entities such as Inheritance Tax and anonymity but all of the new tax rules are likely to mean fewer property ownerships and purchases in such structures with more switching to alternative vehicles or a more standard personal ownership.
The fact that we now have greater certainty surrounding all these issues will be positive for the Prime Central London market. The purchasing of a £2m+ property will undoubtedly be more complicated in future with buyers needing to seek financial and legal advice depending on the reason for purchase before completing. Buyers will have to get accustomed to the new rules but once this has been done we expect the market to return largely unaffected with the drop off in transactions seen since the Budget gradually returning closer to pre-Budget levels.
Neil Chegwidden, Director, Residential Research at Jones Lang LaSalle commented: "It is true that taxation for all will be higher in the £2m+ market but we still expect the attraction of London and the benefits of owning in London will remain. The higher standard SDLT rate of 7% is likely to mean slightly lower transaction levels in future which should support prices, but we believe that once the dust settles the Prime Central London residential market will have adapted to a new set of rules in terms of ownership but that the fundamentals of market dynamics, following a transition period, should remain largely as it was before the 2012 March Budget. The key change is how people will own such property, not whether they will buy or own."