Wednesday, March 21, 2012

Limited impact from UK property tax clampdown

The proposed closing of a property tax avoidance loophole in today’s United Kingdom budget statement is unlikely to have a serious impact on transactions involving overseas property buyers, according to sources contacted by PropertyGuru.

UK Finance Minister George Osborne revealed his plans to “come down like a tonne of bricks” on those who sell their properties through offshore companies to avoid paying stamp duty.

Martin Bikhit, Managing Director of London estate agency Kay & Co, told PropertyGuru: “The plans to close the offshore stamp duty loophole are unlikely to have any major impact on demand for central London property.  Investors are not buying to simply exploit potential tax saving loopholes; they are buying either because they want to live in a particular property in a particular area of London or because they want to benefit from the long term investment growth potential that the market offers.  The stamp duty loophole was simply a by-product which was successfully exploited by investors with well-paid advisors – and they were well paid, given that in some cases the fees for setting up and administering these companies are significant.”

Bikhit added: “One should not lose sight of the fact that the principal reason for setting up offshore companies to purchase property is as a way of capital gains tax planning, something which ‘apparently’ is not going to be altered as part of today’s budget and not stamp duty saving.”

Trevor Abrahmson, Managing Director of prime and super-prime London agency, Glentree International, said: “There is something very puzzling about the much-talked-about subject of stamp duty.  In the vast majority of cases properties are owned by individuals in London and the UK since there is no tax liability on any gain made and realised on the sale of your primary residence.  Therefore in some cases - but not all of course - foreign purchasers choose for various reasons to use offshore companies as a vehicle to purchase the chosen property.  Stamp duty is paid by the offshore vehicle in the normal way.”

He added: “International purchasers choose offshore companies for a number of reasons:  it provides them with much needed privacy away from the prying eyes of their adversaries; it allows them to repatriate money abroad particularly if they have arranged  a loan in this country in order to fund the purchase of a property which is counter balanced by a loan based in another part of the world; the corporate veil is useful to protect the purchaser from creditors and possibly divorce.”

Richard Barber, partner in residential sales at Prime Central London estate agency, W A Ellis, said there is a misconception that the use of stamp duty mitigation schemes is widespread in the £1m+ market, adding that most people are very uncomfortable about these vehicles and very few use them.

He said: “Those who do purchase in a company name, which is currently perfectly legal, do actually pay stamp duty at the outset if they are purchasing a property. The stamp duty will be mitigated by the next purchaser and the benefits shared equally between buyer and seller. The duty on this is 0.5 percent as opposed to the 5 percent they would have to pay via SDLT but this whole saving can only be realised when the property is actually sold. I believe that the Chancellor will clamp down on this in today’s Budget by stating that the sales of shares in a company involving property will be subject to stamp duty at 5 percent. I don’t think the Chancellor will ‘post’ legislate this, as buying and selling property via a company has been a legal method of transacting.”

James Wyatt, partner at high-end real estate agency Barton Wyatt, added: “If the SVP loophole is closed there is unlikely to be a great change in the buying activities of foreigners. The U.K. is an extremely attractive place to buy property given the Pound’s weakness in recent years. In fact the UK is an all-round favourite choice with our dominant financial centre, superb cultural activities, some of the World’s best restaurants and top drawer educational choices. The problem in the Home Counties we face is a dwindling stock of new properties of a high enough calibre and this will inevitably lead to price rises.”

Camilla Dell, Managing Partner of London buying agency Black Brick Property Solutions, said: “The most widely expected changes are the introduction of measures to prevent both stamp duty avoidance when acquiring properties through offshore companies – and capital gains tax when selling a property held in an offshore company. If such provisions are indeed introduced we do not see them as changing the fundamental supply and demand characteristics of the market.”

In her experience, this practice remains rare and that any potential stamp duty saving is normally seen as a bonus, rather than a driver of price.

She added: “At Black Brick SDLT schemes were never something that we supported or promoted to our clients and I firmly believe that everyone purchasing property in the UK, including foreign buyers, should pay stamp duty. I do not think that the closing of the loophole on stamp duty saving schemes will result in a significant drop in the level of interest on London property from wealthy overseas buyers. In the last five years, we have only ever ended up saving stamp duty by purchasing the company owning the property a handful of times, and on each occasion this was seen as a bonus by our client rather than the main driver behind their purchase.”

View the original article here

Source Property Guru

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