Tax changes to “clobber” London’s luxury home market
4 December 2014
Changes to the Remittance basis change (“RBC”)
UK resident foreign domiciliaries (often known generically as “non-doms”) are going to see another increase in the annual RBC charge that they pay in order to claim the benefit of the remittance basis.
The lower £30,000 charge (for those resident 7 out of 9 years) will remain at £30,000 whilst the higher £50,000 charge (for those resident 12 out of 14 years) will increase to £60,000. However, the more radical news is the proposed introduction of a £90,000 annual charge for those resident 17 out of 20 years.
At present it is unclear when it is proposed these changes will be introduced from.
ATC comment – an ill-thought out attempt to somehow align the RBC with the concept of deemed domicile and effectively squeeze even more tax out of a group of individuals that already contribute in excess of £8bn a year to the UK economy.
Consultation on the Remittance Basis
In delivering his Autumn Statement, the Chancellor has indicated that there will be a consultation into the remittance basis. It has been proposed that those wishing to claim the remittance basis must do so for a minimum period of 3 years.
ATC comment – perhaps another attempt to secure more revenues by effectively preventing non-doms from making an annual choice of whether to claim the RBC. We see no logic to this and suggest that those better advised individuals may be able to plan accordingly and could be largely unaffected. However, there is also a fear that continued increases in this charge could further increase the exodus of nom-doms leaving the UK.
Restricting personal allowances of non-residents
The proposal to restrict non-residents’ entitlement to personal allowances has been delayed until at least April 2017. Although the Government “will continue to discuss implementation of this change”, they have confirmed that a further consultation will only be issued “should they decide to proceed”.
Stamp Duty Land Tax
Perhaps the major “headline” change was the radical reform in the rates of Stamp Duty Land Tax (“SDLT”) and how a more graduated tax (akin to income tax) will smooth the previous SDLT distortions. Whilst welcome news generally, the revision of the bands and increased rates of duty will have a significant impact on those acquiring higher valued properties in excess of £1.5m.
New rates effective from 4 December will be:
- £250,001 – £925,000 – 5%
- £925,001 – £1.5m – 10%
- Above £1.5m – 12%
Annual Tax on enveloped Dwellings (“ATED”)
Despite only being introduced with effect from April 2013, the Government has found that revenues from the ATED charge have been five times as high as their original predictions. It is perhaps not surprising that the Autumn Statement proposed a second increase of “50% above inflation” in as many years.
From April 2015 the new rates will be:
- £23,350 (2014/15 £15,400) for properties worth between £2-5m
- £54,450 (2014/14 £35,900) for properties worth between £5-10m
- £109,050 (2014/15 £71,850) for properties worth between £10-20m
- £218,200 (2014/15 £143,750) for properties in excess of £20m.
The Government have also confirmed that they will “introduce changes to the filing obligations and information requirements with respect to properties that are eligible for a relief”.
Consultation response to previous consultation document “Implementing a capital gains tax charge on non-residents”
The Government has now issued a response to its previously issued document in March 2014. The original proposal to charge residential property will not be extended to commercial property, which whilst welcome news should not detract from the fact that foreign investors will be caught by these rules in so far as they own UK residential property.
The proposal to abolish the ‘main residence election’ in favour of highly complex fact-based tests to decide which property would benefit from private residence relief – PRR – (where a person is not subject to tax on gains when they sell their home) – has been scrapped. Instead, non-residents investing in UK residential property and UK residents investing in non-UK property have to meet an occupation test.
It is much simpler. If you are in your home for 90 midnights in a tax year you can nominate that property to benefit from the private residence relief. Importantly, there will be no change from the current rules for individuals who are UK resident and own only UK properties.
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This flyer is intended for guidance only, and professional advice should be obtained before acting on any information contained herein. Aquarius Tax Consultancy Limited cannot accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.