Changes To Mansion Tax

Written by on December 11, 2012 in Money - No comments | Print this page

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Prior to the budget meeting, there was a good deal of focus on the Mansion Tax, the annual levy on properties whose value exceeds £2m. Rather than address this issue as a standalone revenue increase, the government pursued more sweeping changes through the Stamp Duty Land Tax (SDLT) along with measure that would extend the capital gains tax (CGT) to properties owned by foreign entities. This consultation led to another regarding property held by “non-natural persons” and that had value in excess of £2m.

The new SDLT will amount to 7 percent for properties acquired by natural citizens after March 22, 2012 and where the property value exceeds £2m.  Prior to this act, the 5 percent SDLT will remain in effect on properties acquired before March 22, 2012 that met the £2m threshold. The new rate for non-natural residents who own mansions will not go into effect until April 2013.

SDLT Rates Also Change

This legislation has already shown some effect as selling property owners are reducing their prices to stay below the mansion tax range. Buyers are hesitant to take on the newest tax burden.

Another old tax issue dealt with non-UK domiciled persons holding property in the name of a non-UK registered company. This law allowed non-residents to turn a UK asset into an asset in another land and an asset exempt from IHT. These properties were taxed at much lower rates outside the UK.

This favorable tax consideration was not overturned but actions were taken to increase the taxes paid by the non-domiciled occupant and corporations. Government has determined that UK residential properties should not be owned by foreign corporations and hence is taking measures to discourage this type transaction.

The first anti-corporate owned property measure will be instituted for properties under this ownership as of March 21, 2012.  The new SDLT penal rate will be 15 percent for “non-natural” persons owning residential property in the UK. this rate will not apply to properties owned prior to March 21st.

Residential Property Should Be Owned By Naturals

The term “non-natural” applies to any person , or collective scheme such as a trust, companies, partnerships or corporate partner. For all intents and purposed, it is intended that a foundation will also be considered eligible for the new penal SDLT.

Persons acquiring property under the title of a trustee of a settlement or as the nominee of natural person will be exempted from this new tax. For the 15 percent tax, each individual property is regarded as a separate entity. The changes are sweeping and a bit confusing. The best way to make sure you understand your liability is to consult with a tax expert.

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This is a guest post.  Victoria, from Apple Tree based in Witney, UK, handles all tax and accountancy needs for her client’s small businesses.

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