The anti avoidance provisions announced by Chancellor Osborne on 21 March 2012 relating to a 15% SDLT charge on companies acquiring UK residential property exceeding £2,000,000 are based on a misconception that may well damage the UK's economic interests. The use of offshore companies by persons often wholly unconnected with the UK who wish to buy UK investment property is intended primarily to mitigate the death rate of UK Inheritance tax and also capital gains tax. This is not unreasonable given many investors behind offshore companies are non-UK resident and non-UK domiciled. Contrary to the impression given by the press and politicians, such offshore companies have always paid SDLT when acquiring UK property at the prevailing rates.
In theory, it is true that after the acquisition of a given property by an offshore company, a future buyer could avoid SDLT by buying the shares of the offshore company, rather than buying the property from the offshore company. However, in practice few buyers are tempted. This is because a buyer faced with the choice of buying the offshore company's shares, or buying the property and paying stamp duty, will be advised by any lawyer or accountant that buying the shares of an offshore company with no or unaudited accounts is an extremely high risk strategy . Who knows what liabilities the offshore company may have that could come back to haunt the buyer! In Jordans experience buying the shares of an offshore property - owning company rather than buying the property from the offshore company would be very unusual .
So the 15% SDLT charge is regrettable, because together with the proposed annual charge against property-owning companies and the proposed CGT exposure of such offshore companies (despite the fact the offshore company is non-UK resident), the end result may well be to put international investors and HNWI's off the idea of investing their capital in UK property (with spin-off benefits for UK professional advisors and property agents etc).
Martin Palmer, Director, Jordans International Limited
For more information visit http://www.jordansinternational.com/