STAMP DUTY LAND TAX – AVOIDING DOUBLE TAXATION
WHEN DE-ENVELOPING A PROPERTY THERE COULD BE A DOUBLE TAX EXPOSURE
Historically, stamp duty land tax (SDLT) is the tax paid by a purchaser of a property (applicable to both residential and commercial properties albeit at different rates) to HMRC. The rates of stamp duty have varied over the years but generally have always been on an upward trend. The tax is also a tiered tax with the rates increasing as various thresholds are reached often making the sums quite considerable where property is being purchased in an expensive area.
Double Taxation Exposure – Technically SDLT is triggered when there is a conveyancing transfer from one legal entity to another. At law, a company is a separate legal entity to its shareholder(s)/beneficial owner(s) which means in many cases when an individual seeks to de-envelope a property owned by a company (UK or offshore based) in his or her own favour (i.e. not to an independent 3rd party) even where he or she is the actual ultimate beneficial owner an SDLT event is triggered. However, fortunately this need not always be the case but to avoid double SDLT exposure there are certain very technical pre-requisites.
PUNITIVE SDLT TAX RATES FOR OFFSHORE COMPANIES
Although not directly pertinent with respect to de-enveloping a property it is nonetheless contextual to note that HMRC has a punitive rate of SDLT for legal entities – mostly offshore companies – that do not come under a stated HMRC relief and/or exemption. The punitive rate charged is at 15% on residential properties costing more than £500,000 bought by “certain corporate bodies – or ‘non-natural persons’ (NNP’s), which include:
- Companies;
- partnerships including companies;
- collective investment schemes.
In addition, such ‘companies’/bodies may also need to pay the already discussed ATED tax.
RELIEFS & EXEMPTIONS AGINST THE PUNITIVE 15% SDLT RATE
It should be noted the 15% rate does not apply to property bought by a company that is acting as a trustee of a settlement or bought by a company to be used for:
- a property rental business
- property developers and trader
- property made available to the public
- financial institutions acquiring property in the course of lending
- property occupied by employees
- farmhouses
In the above cases the standard residential rate of SDLT (see below) applies:
STANDARD TIERED FREEHOLD SDLT RATES
| Property or lease premium or transfer value | SDLT rate |
| Up to £125,000 | Zero |
| The next £125,000 (the portion from £125,001 to £250,000) | 2% |
| The next £675,000 (the portion from £250,001 to £925,000) | 5% |
| The next £575,000 (the portion from £925,001 to £1.5 million) | 10% |
| The remaining amount (the portion above £1.5 million) | 12% |
WITH RESPECT TO LEASEHOLD PROPERTY when you buy a new residential property you pay SDLT on the purchase price of the lease (the ‘lease premium’) using the same aforementioned rates above. However, if the total rent over the life the lease (known as the ‘net present value’) is more than £125,000, you also pay SDLT of 1% on the portion over £125,000.
‘SECOND’ HOME PUNITIVE SDLT RATES
In addition to the punitive SDLT rates aimed at those wishing to purchase a property using a company there are also higher rates applicable to those purchasing a second home. After the 26th of November 2015, an additional 3% will be added in such circumstances to the standard SDLT rate.
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A FULL RANGE OF PROPERTY DE-ENVELOPING, ACCOUNTANCY & TAX PLANNING SERVICES
De-enveloping.co.uk is part of The SCF Group of Companies and has been specifically set-up to assist those who have purchased London and UK properties using previously tax efficient offshore or international business companies but now find that the annual Advanced Tax on Enveloped Dwellings (ATED) is too high to economically maintain on properties worth over £500,000.00 AND do not want to be subject to Stamp Duty Land Tax (SDLT) when transferring a company held property to themselves.
It should be noted that generally it is not economically viable to de-envelope properties below £750,000.00 but as the ATED tax thresholds are very punitive it becomes almost compulsory (where possible) for properties worth over £1,000,000.00 with very substantial savings coming into play for properties worth over £2,000,000.00.
The services offered by The SCF Group combine almost 25 years of offshore and tax planning experience which enable the firm to correctly prepare, amend, legalize or otherwise prepare a company for tax free conveyancing in conjunction with our specialist conveyancing solicitors. For those with properties worth £2 million or more the cost of de-enveloping is often less than 1 year’s ATED Tax.
It should be noted that not all properties can be de-enveloped including properties that have received 3rd party funding or are subject to encumbrances. In addition, generally commercial properties are exempt from ATED as are those that are carrying out genuine UK property management services, which for the purposes of clarification does not simply mean renting out a property using a UK estate agent but actually carrying out property management in the UK with profits subject to UK corporate and value added taxes.
ACCOUNTANCY & TAX PLANNING
In addition to property de-enveloping services The SCF Group also provides a wide range of tax planning, accountancy and company formation services both within the UK and internationally including wealth protection trusts and private interest foundations. For more information on the main SCF Group please go to our ‘Mother’ Website www.scfgroup.com.