Is the latest tax on enveloped dwellings hitting honest owners first? Matthew Braithwaite investigates
The use of companies to own UK residential property has been placed firmly in the spotlight following David Cameron's 'anti-corruption' speech last week in Singapore, in which he unveiled plans for the Land Registry to publish details of all properties in England and Wales owned by foreign companies. This announcement was in response to reports that UK properties 'are being bought through anonymous shell companies, some with plundered or laundered cash'.
Until recently it was commonplace for non-doms to own UK residential property indirectly through an offshore company or other offshore vehicle (the practice of 'enveloping'). This was done for a variety of reasons, only one of which was that it was tax efficient to do so, in an entirely legitimate way.
Concerned at a perceived loss of tax revenue, in April 2013 the government introduced a raft of tax changes aimed at high value properties, including the Annual Tax on Enveloped Dwellings. ATED is an annual tax imposed on 'high value' residential property which are held in an 'enveloped' structure.
The government had hoped that the introduction of ATED would see properties being 'de-enveloped' to avoid paying the charge, but the tax receipts during its first year suggested otherwise. The government then upped the ante in April 2015 by increasing the rates of ATED by over 50 per cent for properties worth more than ’2 million.
More recently, it has announced that all UK residential property will be subject to inheritance tax from April 2017. It remains to be seen whether these changes will prompt more de-enveloping.
Considering the tax implications in isolation, or assuming that a company must be being used for fraud or money laundering, ignores the legitimate reasons why companies are used to own UK property, the primary one being privacy. (Using a company means it is the name of the company that is published on the Land Registry title not the underlying owner.)
Although the reports suggest that the corporate veil may be used to shroud the proceeds of money laundering, for many international property owners, owning their London property via a company affords protection against intrusive media and, in some cases, the less than legitimate regimes of the countries from which they originate.
The government's intention to publish details of all land and properties in England and Wales owned by foreign companies is nothing new. In practice, this information already exists in the public domain and is accessible, albeit at a small charge.
In a world of increasing global transparency and with the government pioneering a public register of persons with significant control in UK companies, its latest plan comes up short if it is as a serious attempt to flush out the proceeds of crime. For the vast majority of honest international owners who simply require privacy, and are willing to accept the likely tax charges, use of a company to own property will continue to remain attractive.
Matthew Braithwaite is a senior associate at Bircham Dyson Bell