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December 7, 2012 6:30 pm
George Osborne may have ruled out new taxes on high-value properties in this week’s Autumn Statement, but many homeowners will soon face a mansion tax by another name as new rules on the taxation of £2m-plus homes owned through a company are set to be confirmed next week.
On Tuesday the government will publish its draft finance bill, which will include details of the annual charge on corporate vehicles – both UK and overseas – used to buy expensive homes. The annual charge proposal was laid out in March’s Budget but has been subject to consultation.
This charge could cost £15,000 a year for owners of properties worth between £2m and £5m, and as much as £140,000 a year for homes worth £20m and above.
The government will also reveal if it plans to push ahead with extending the capital gains tax regime to gains on the disposal of properties held in overseas company structures.
“Many were expecting to see announcements [in the Autumn Statement] on proposed measures targeting high-value residential property owners,” noted Paul Emery, tax director at PwC, the accountancy firm.
However, he points out there will “in effect be a mansion tax on high-value homes held by companies”.
Owners and buyers of expensive homes have already been hit with tough tax measures since March. The government raised stamp duty on sales of houses worth £2m and above from 5 to 7 per cent, or 15 per cent if held within a company structure.
The changes have already caused a slowdown of property sales. Land Registry figures reveal that sales of houses worth more than £2m fell almost a third during the three months to October, compared with a year earlier.
Private banks are offering mortgage rates as low as 1.87 per cent for homeowners looking to borrow over £2m – as long as they have assets to place with the bank.
Rates of 2.08 per cent with a fee of between 0.5 and 1 per cent are more widely available, according to Anderson Harris, the high-end mortgage broker.
One large private bank has launched a new 10-year tracker at 2.45 per cent – Bank of England base rate plus 1.95 percentage points, with a 0.5 per cent fee. The maximum loan to value is 50 per cent.
In order to take up this deal, Nigel Bedford of Largemortgageloans.com said the homeowner needs to have a minimum of £3m to set up an initial relationship. For example, they could borrow a £2m mortgage and invest £1m with the bank.
“Those eyeing up prime London property have been holding off purchases ahead of the Autumn Statement and the publication of next week’s draft legislation regarding the treatment of properties held in a company structure,” said Oliver Knight, director of research at estate agent Knight Frank.
He says the overarching purpose of these tax changes is to prevent people avoiding stamp duty by holding the property through a non-UK company, and encourage them to unwind these structures.
While most are waiting until Tuesday for clarity of the new measures, many private banks and property lawyers have started to make preparations for their clients.
“We have had meetings with a number of private banks who are taking a proactive stance and have already been in detailed discussions with HMRC and taken top legal opinion on the actions that clients can take before these aspects of the bill are expected to come into force next April,” said Nigel Bedford of Largemortgageloans.com.
If an annual charge is introduced, homeowners will have to weigh up whether they still prefer the anonymity of a corporate structure or to transfer the purchase into their own name.
“We have held numerous meetings with concerned clients and their tax advisers over the past few months but we have been in a “wait and see” mode,” said Mark Harris of mortgage broker SPF Private Clients. “Once the proposals are clarified we expect a flurry of activity as people restructure.”
Rosemary Marr, senior director of Nedgroup Trust, part of Nedbank Private Wealth in Jersey, said her company has already positioned itself so that appropriate action, if any, may be taken in the weeks following.
“We are aware that a number of London-based tax advisers are scheduling meetings in the Channel Islands for the days following the announcements,” said Marr.
According to Bedford, some private banks believe that moving a property from a corporate structure to a personal name will be regarded as a transfer of equity, provided that the underlying ownership remains the same. This would mean that stamp duty is payable on the debt and not the property value, reducing the amount of stamp duty to be paid.
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