Budget 2014: Tax advisers caught out on corporate properties

by Kevin Reed

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20 Mar 2014

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THE PENSIONS INDUSTRY may have been caught on the hop with George Osborne's unexpected upheaval of the regime, but tax advisers didn't get away scot-free.

While Budgets have been more benign under the coalition government, advisers were caught out with revisions to the taxing of properties purchased within corporate wrappers.

The stamp duty land tax (SDLT) and annual tax on enveloped dwellings (ATED) have been extended to cover properties worth between £500,000 and £2m. The SDLT rate starts from today, while new annual charge bandings will apply from April 2015 and the year after.

Advisers have expressed shock at the extension, as there had been no warning from HMRC or the Treasury that this was on the cards.

The taxman has been looking to crack down on tax avoidance by foreign buyers using corporate entities to buy and sell properties, but the new rates drag in many more properties into the regime.

"In reality it may be that these changes are designed to raise revenue from this constituency, or to encourage more property to be brought into the letting market," according to Charles Beer, a managing director at Alvarez & Marsal Taxand. "This particularly applies in London where anecdotally a lot of new flats in this value bracket are bought by foreign investors and left vacant."

Other advisers have bemoaned the change for going against the principle of certainty in the tax system, and because there are some genuine privacy reasons why people would purchase a property through a corporate entity.

More interestingly, the Treasury admitted within the Budget documents yesterday that it had recouped five times more than the £75m it had estimated for 2013/14 from the regime's introduction for properties worth more than £2m.

"It goes to show how little the government knows about property ownership in the UK," said one adviser. "It must have been a fundamental misunderstanding of the aggregated value of property within corporate wrappers."

With the Treasury anticipating a £370m haul over the next five years from expanding its corporate wrapper reach, it remains to be seen whether they have factored in a larger-than-expected market, and whether, at that lower level, people will drag properties away from the regime.

Whatever the case, it is likely to have left some tax advisers scratching their heads this morning.

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