Stamp duty charge may affect wealthy property owners in UK

Kuala Lumpur: A couple of changes in UK's property tax structures announced in late March may affect wealthy Malaysians who have bought into that property market.

On March 21, Chancellor of the Exchequer George Osborne introduced a new 15% stamp duty rate, three times the previous level for residential properties over £2mil (RM9.8mil) bought in the name of companies.

Property consultancy Savills said while it needed to look at details of the anti-avoidance provisions, the 15% stamp duty “marks the end of the use of corporate vehicles to avoid stamp duty.”

It added that a 15% stamp duty charge for such transactions was probably a sufficient deterrent.

“The big question is whether there will be an opportunity for those who have used this route to undo it without being hit by the proposed capital gains tax charge,” said Savills in its research report.

“We'll also need to look at whether transfer from corporate to personal ownership triggers a stamp duty charge at 7%,” Savills said.

Savills said the move could impact on London's attractiveness to such buyers.

“However, much depends on the detail,” the report said.

Zahid Alauddin, senior partner at Kingfields (Singapore), said there were two reasons why a corporate vehicle was used when buying property. The first may be to circumvent the hefty 40% inheritance tax. The second may be that wealthy individuals want to protect their privacy.

“The 15% rate for investors usingcompanies to hold UK properties will be hard-hitting and may deter people to hold properties using such structures.”

A further sting in the tail came from changes in capital gains tax rules for overseas companies, said Zahid.

The British government imposed a real property gains tax of 28% on properties of £2mil and above. There was no capital gains tax on real estate for foreign buyers prior to the budget.

The charge of capital gains tax is to be extended to gains realised on disposal by “non-resident non-natural persons” of UK residential property.

“Non-natural persons” would include companies, collective investment schemes (including unit trusts) and partnerships in which the non-natural person was a partner, said Zahid. These changes will apply from April 6, 2013.

“Only time will tell the impact of these measures,” said Zahid.

Since 2009, the demand from overseas investors for London's prime real estate has resulted in double-digit price increases in prime London areas. The global financial crisis had sent prices into a trough in 2008.

Henry Butcher group said the move would have no effect as most Malaysians bought below £1.5mil.

By The Star