The announcement by the Chancellor of the Exchequer in his Autumn Statement on 3 December 2014 of radical changes to the stamp duty land tax (SDLT) regime, coupled with forthcoming extension of capital gains tax (CGT) to disposals of residential property owned by non-residents, and an increase in the rates of the annual tax on enveloped dwellings (ATED), mean that those owning and thinking of purchasing UK residential property need to consider more carefully than ever the appropriate ownership structure from a UK tax perspective.

The extension of the CGT regime to non-UK residents, and the increase in ATED rates, builds on legislation which has been introduced over the last three years, the object of which has been to discourage the ownership of UK residential property intended for owner occupation through offshore structures.

The regime since 2012/13

The existing provisions are as follows:

ATED, which was introduced in April 2013.
A punitive 15% rate of SDLT on the purchase of UK residential property through a company (and certain other vehicles). This was introduced in March 2012.
A charge to CGT on the sale by a company (and certain other vehicles) of UK residential property. This was also introduced in April 2013 (for gains accruing after that date).
There are exceptions from all three of the above taxes for UK residential properties which have been acquired as a property business (including property rental and development). These are not considered in detail in this note, which focuses principally on properties acquired for use as a private residence.

Taking these three taxes in turn:


As originally introduced, ATED only applied to residential properties valued at more than £2 million (there are provisions for the property to be revalued from time to time). The annual charge originally ranged from £15,000 for properties valued up to £5 million to £140,000 for properties valued at over £20 million. Provision was made for these figures to rise in line with inflation.

By April 2016, the ATED charge will apply to properties worth as little as £500,000 (with lower rates of charge at or below £2 million).

Punitive SDLT rate

As originally enacted, the punitive rate of SDLT was 15%, and applied to residential properties acquired by companies for more than £2 million.

The rate remains 15%, but since March 2014 it has applied to properties acquired by companies for more than £500,000. Reliefs are available under certain conditions for properties acquired for rental investment, or for development, so that the normal SDLT residential property rates apply. But for owner occupation, relief from the 15% rate will typically not be available.

ATED-related CGT charge

Where applicable, CGT is charged at 28% on the gain realised on sale. Originally, this charge only applied to disposals of property for more than £2 million. By April 2016, the charge will apply to disposals of more than £500,000.

The aim of these provisions was to make the purchase by a non-resident of a valuable UK residential property for his occupation via a company highly unattractive. (There were still good reasons for purchasing residential properties for commercial purposes (eg rental) through a corporate structure.)


Taking as an example a £5 million property:

The purchase by a company would involve £750,000 SDLT as compared to £350,000 if purchased in the non-resident’s own name.
ATED of £23,350 (originally £15,000) would be payable annually subject to increases in line with inflation, and this tax would almost certainly increase significantly when the property is re-valued for ATED (probably as at April 2017 for ATED from 1 April 2018), since the value would be likely to cause the property to move into the next charging band (where in 2015 the charge will be £54,450). No ATED is payable by an individual owner.
On a sale of the property, the company would be liable to CGT on the full gain at 28%. At present, a non-resident individual owner has no liability to CGT on a sale.
There were, however, some reasons in certain cases to purchase a property through a non-UK company (or to retain the property in such a company):-

As a protection against inheritance tax (IHT). Particularly in the case of an older person, the yearly ATED charge might be regarded as an acceptable price to avoid a potential 40% IHT liability on death.
Where anonymity is an important factor, though arranging for the property to be purchased by a company acting purely as a nominee for the non-resident individual might go some way to providing this, without causing these adverse tax consequences.
Changes to the regimes

Each of these regimes is now changed, or will be from April 2015, as follows:


In the Autumn Statement, the Chancellor announced that, in addition to the usual inflationary increase, the ATED charge will, for properties worth more than £2 million, be subject to a one-off 50% increase in the level of the charges, and that these charges will then continue to increase annually in line with inflation (Consumer Prices Index). The table below shows the changes in ATED rates from 1 April 2015.

Property value “Old” ATED (2014/15) (£) “New” ATED (2015/16) (£) Increase (£)
Over £1m to £2m n/a 7,000 7,000
Over £2m to £5m 15,400 23,350 7,950
Over £5m to £10m 35,900 54,450 18,550
Over £10m to £20m 71,850 109,050 37,200
Over £20m 143,750 218,200 74,450
It has previously been announced that a new ATED band for properties worth over £500,000 and up to £1m will be introduced from 1 April 2016. The initial charge within this band is still expected to be £3,500.


The SDLT regime for residential properties (but not commercial or mixed use properties) has been changed in two respects, with effect from 4 December 2014:

The rates have changed, with the top rate (other than the punitive 15% rate) increasing from 7% (for properties over £2 million) to 12% in the case of properties over £1.5 million – although the effective rate will never be quite as high as 12% because of the way in which the calculation has changed.
The method of calculation has changed. Under the old system, a single rate of SDLT applied to the whole purchase price and that rate increased depending on the purchase price. This resulted in anomalies at the thresholds. For example, under the old system a purchase of a property for £2 million attracted SDLT at 5% (£100,000), while a purchase for £2,000,001 attracted SDLT at 7% (£140,000). The new system applies each rate to the amount of the purchase price falling within that band.
This means that although the SDLT rate has fallen (or in just a couple of cases remained the same) for properties worth £937,500 or less, or falling in the bracket £1,000,001 to £1,125,000, for all other properties the rates have increased. For the most expensive properties, the rate increases are very significant, as the following table indicates. The table assumes purchase of a residential property in individual (or trustee) names so that the punitive 15% rate does not apply.

Property value “Old” SDLT (£) “Old” rate (%) “New” SDLT (£) “New” rate (%) Increase (£)
£1m 40,000 4 43,750 4.38 3,750
£2m 100,000 5 153,750 7.69 53,750
£5m 350,000 7 513,750 10.28 163,750
£10m 700,000 7 1,113,750 11.14 413,750
£20m 1,400,000 7 2,313,750 11.57 913,750
From this it can be seen that, for more expensive properties, the effective tax rate is very high indeed. Despite the increased ATED charges, might the punitive 15% rate be tolerable for certain non-domiciliaries as the price for buying IHT protection?


Until now, non-UK residents (apart from those trading in land or only temporarily absent from the UK) have not paid CGT on disposals of UK residential properties, except where those properties have been held in companies and an ATED-related CGT charge (on the increase in value from 6 April 2013) has applied. This is now set to change as CGT will be extended to disposals of residential property by all non-UK residents from 6 April 2015. The broad effect of this will be to make the CGT playing field more level between UK residents and non-UK residents, and also between individual and corporate owners, though the position will not be exactly the same for each of these categories of person.

The charge will only apply to the post-5 April 2015 element of the gain: in other words values will be “rebased” to their 6 April 2015 values.

In this context “residential property” includes properties which have not yet been built, and so disposals by non-UK residents at a gain of contracts for “new build” properties prior to completion will also be caught by the newly extended CGT rules.

The “headline” CGT rate for individuals is 28% though a lower 18% rate will apply to any part of a gain covered by an individual’s available basic rate band.

The headline CGT rate for companies is the rate of corporation tax (20% from April 2015), and indexation is available (meaning that CGT will not be payable on the inflationary element of the gain); except where ATED-related CGT applies where the rate is 28%. The ATED-related CGT charge will continue to apply to disposals of residential properties held within companies, but if for any reason there is no ATED-related CGT charge (for example if the property has been rented out commercially at all relevant times, or is below the ATED thresholds), the new CGT charge will also apply to companies. It is worth stressing that, unlike with ATED-related CGT, there will be no complete relief from CGT on disposals of residential properties held for qualifying commercial purposes (eg rental or development): this is an important change in the rules.

It will not always be straightforward to decide whether individual or corporate ownership is best for CGT reasons. There may be some CGT advantages to holding residential property in individual names. For example, an individual has access to an annual exempt amount for CGT (currently £11,000), to a basic rate band and, potentially, to principal private residence relief (see below). So assuming an individual has no other UK tax liability for the year, the first £11,000 of gains would at current rates be exempt from tax, and the next £32,000 or so would be taxed at 18%. Any additional capital gain would be taxed at the same 28% rate. Conversely, a company would pay 20% CGT, with indexation available, on any part of the gain to which ATED-related CGT was not applicable, and 28% CGT to any part of the gain to which ATED-related CGT was applicable. It can be seen that there will not always be a straightforward “right answer” – it will be very important for individuals to take proper tax advice prior to purchase so that they can make an informed decision on structuring.

Principal private residence relief is an existing relief available to UK residents which allows 100% relief from CGT on disposal of a main home. Where an individual lives in more than one home, he is able to “elect” which of those is treated as his main residence. The Government has decided that it would not be fair to allow all non-UK residents (who are only within the scope of CGT on UK residential property, and not on properties outside the UK) to be able to elect automatically for their UK property to be their main residence. Therefore a minimum presence requirement is being introduced for non-UK residents. If a non-resident individual spends at least 90 days in his UK residence (is present at midnight) in each tax year, he will be able to elect that residence as his exempt residence for the purposes of CGT. In practice this restriction on principal private residence relief to those non-residents who spend at least 90 days in their UK property may not be that useful, since many people spending such a period in the UK might then become UK tax resident. However for certain categories of individuals with limited ties to the UK, and who can spend 120 or even (in certain limited circumstances) 182 days in the UK without becoming tax resident, it might be useful.

What are the implications for ownership structures?

No two cases are identical, and specific advice should always be taken, but the following scenarios may prove not uncommon.

A major advantage of non-UK domiciled individuals buying UK property through an offshore company is protection from IHT. For new purchases, particularly at the highest values, the increased SDLT rate of 11% or more might therefore make the 15% SDLT cost of buying in a company more attractive. To put it one way, IHT protection can be “bought” for less than 4% extra SDLT, plus an annual ATED charge – which is of course much larger from April 2015 than it was before. Older individuals, or those for whom life insurance is hard to obtain, may find corporate ownership more attractive than it was before 4 December. There is also the prospect (under current rules) of selling the company shares free of CGT in the future, although the unrealised gain on the residence itself would remain within the company, and this might be unattractive to purchasers.

Some individuals may be disappointed at the dramatically increased ATED rates and look to restructure out of corporate ownership. Unfortunately, removing a property to which ATED applies from a company will give rise to an ATED-related CGT charge, usually at a rate of 28% of the gain since 6 April 2013. This charge may equate to several years’ ATED; and individuals may also choose to wait until next year to see if the threatened “mansion tax” becomes reality if the Labour Party wins the next UK general election.

For those looking to buy UK residential property as an investment, will the increased SDLT rates act as an incentive to invest in commercial or mixed use properties, for which the highest SDLT rate is still usually “only” 4%? Is the Government trying to encourage such behaviour?

Only time will tell; but what is certain is that there is no “one size fits all” solution for UK residential property ownership by non-residents any more.