Budget 2014: SDLT for £500k enveloped properties hits expats

In a move which will net many more than just the oligarchs of Belgravia, the government has announced a reduction in the SDLT threshold to £500,000 for property buyers who buy properties using corporate enveloping to avoid paying stamp duty land tax (SDLT)

The current £2m SDLT threshold set at the 15% higher rate for certain residential property transactions will be reduced to £500,000 with effect from April 2016. This essentially captures so-called envelope dwellings, which are purchased by certain non-natural persons under the umbrella of a company to avoid SDLT. But it was also affect non-domiciled UK citizens who are retired abroad, for example.

The changes to property taxes are expected to raise an extra £90m a year from 2016-17.

The government is already proposing that, from April 2015, a capital gains tax (CGT) charge will be introduced on future gains made by non-UK residents disposing of UK residential property.

The move to bring the threshold down to £500,000 will certainly net far more people and was met with some concern by tax advisers who see the measure as mission creep.

Philip Alfandary, associate director at Menzies LLP, said: ‘The extension of the punitive 15% SDLT charges and the ATED to corporate-held properties worth more than £500,000 will affect more people than the clutch of oligarchs with houses in Belgravia it was originally intended to catch.

‘Potentially, it could affect mass affluent retirees or people who are already non-domiciled and who wish to engage in legitimate estate planning in relation to UK property. It will also catch many property investors who have legitimately structured their finances. There is a massive element of retrospection as these structures are costly to break away from.

This view was echoed by CIOT president Stephen Coleclough said: ‘Properties worth £500,000 take us well beyond the mansions and oligarchs that it was suggested the policy was originally aimed at.

Although the government classifies this as an anti-avoidance measure there is more than a hint of general revenue raising about this measure. It is “pushing the envelope” somewhat to see it only as anti-avoidance. These measures look like part of a move to raise a greater proportion of taxes from property. If so there should be wider discussion and consultation.’

The change to the SDLT threshold is one of a number of measures to tackle property related tax avoidance.

The measures apply to residential properties valued over £2m, and include a new higher rate of SDLT when the property is first ‘enveloped’; a new Annual Tax on Enveloped Dwellings (ATED); and a capital gains tax charge on any gains on disposal of enveloped properties from April 2013.

ATED has raised five times the amount forecast for 2013-14, with significantly more properties above £2m in envelopes than expected.

The ATED-related capital gains tax charge of 28% will apply to properties in the new ATED bands. The 15% rate of SDLT that applies to acquisitions of properties by corporate envelopes will also be applied to properties valued above £500,000 with effect from 20 March 2014.

The introduction of the new ATED bands will be staggered with the £1m to £2m band coming into effect from April 2015, and the £500,000 to £1m coming into effect from April 2016.

The government will also consult on simplifying ATED administration to reduce compliance burdens for genuine property businesses.


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