UK implements tax on real estate held by offshore companies

Riga, Latvia, December 18, 2012, 09:00 / Industry News / Jurisdictions: UK, Source: FT.com

George Osborne’s crackdown on property tax-dodgers has all but wiped out the practise of using offshore companies to buy luxury homes, figures compiled by the Financial Times have revealed.

Data taken from the UK’s three largest upmarket estate agents by sales reveal an 80 per cent drop in the number of homes worth over £2m being brought through corporate vehicles since March’s Budget, when the chancellor imposed a punitive 15 per cent stamp duty on company-based property transactions, and raised stamp duty on homes worth £2m or more to 7 per cent.

On Tuesday, the Treasury is expected to buttress the stamp duty increases with an annual levy on homes held in corporate structures of close to 1 per cent of their value. Property experts say the annual charge is likely to average £22,000 across the market for £2m-plus properties, the vast majority of which are in central London, which has proved a magnet for wealthy international buyers.

The results of a consultation into stamp duty avoidance, announced at the March Budget, will also reveal if the government plans to extend capital gains tax to the disposal of properties held in overseas company structures.

In March, the chancellor said that closing down the corporate ownership loophole was expected to generate an extra £150m a year in stamp duty revenues. While the use of such structures has plummeted, uncertainty over tax changes has unsettled the wider property market, hitting transaction volumes of luxury homes.

Liam Bailey, head of research at Knight Frank, the estate agency, said the chancellor could be “fairly confident that he has significantly dented the appeal of these structures,” adding: “The market has not gone into a tailspin as a result of the tax reforms”.

In London, sales of properties worth £2m-£5m have slumped 22 per cent since the Budget, compared to a year previously, according to Knight Frank.

However, the most marked slowdown in the use of corporate vehicles has been in the so-called super-prime market of houses worth over £10m. In the year before the Budget, a third of transactions of properties worth £10m or more involved companies. That figure has fallen to 3.8 per cent of transactions in the nine months since.

Of the 1,580 sales of £2m plus properties recorded since the Budget, Knight Frank estimated just 36, or 2.3 per cent, had involved offshore companies. The number represents a dramatic decline in the practice, which accounted for 14 per cent of Knight Frank’s transactions in the year to March.

Strutt & Parker, the London-focused estate agent, said it had been involved in two deals where corporate structures were used out of 571 prime property transactions since March. Savills said it only recorded two cases out of a sample of 150 sales above £2m in the same period.

Lucian Cook, a director at Savills, said the figures confirmed that the the use of companies to buy and sell residential property had “been all but extinguished post Budget.”

“The low number of these deals is a very powerful reflection of how much the property market has reacted to these taxes,” added Stephanie McMahon, head of research at Strutt & Parker.

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