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Britain’s Most Expensive Home – More Property Taxes 4U?

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

John Caudwell & Britain’s Most Expensive Home

There was a great programme on TV last night showing John Caudwell and his beleaguered project manager’s attempts to develop what would be Britain’s most expensive home.

Of course, Mr Caudwell is no stranger to taxes. He has in the past been dubbed Britain’s biggest taxpayer.

In the recent election, he allegedly stated that he would leave the UK if Jeremy Corbyn became prime minister.

Clearly, this would have been a shame bearing in mind the cash he has spent on his new Mayfair pad.

However, in the early 2000’s one of Mr Caudwell’s Companies, Dextra Accessories, was involved in the most seminal EBT cases, before the Rangers case took its crown a couple of years ago.

It got me thinking once again about the property taxes slapped on high end property over the years… and is it really worth it?

Property Taxes

I have had many conversations with London property lawyers which have concluded with ‘why on earth would a wealthy person buy a high-end property in London?’

Indeed, things have become expensive and complex.

Less than a decade ago, advising high end clients as to how to hold property was a relatively simple affair.

But then George Osborne, erstwhile Chancellor and now having to hold down several jobs,  stumbled upon bricks and mortar as a method for raising tax revenue.

Since then, the Government has barely paused for breath in raising revenue from property.

Originally, these changes were directly targeted at the international private client. However, now almost all new purchasers of property will find themselves much worse off than once was the case.

The more expensive the pad, the more expensive the tax bills.

SDLT super rate and ATED

Initially, two newly created measures introduced which attacked the corporate ownership of homes:

  1. a super SDLT rate of 15%:where a high value property is acquired by a company and the plan is for the beneficial owner to reside in it. This now applies to corporate purchases, where not being used for commercial purposes, where the value exceeds £500k.

Now, when one looks at the generally increased rates of SDLT, this super rate looks far less than super.

Amazingly, Labour had proposed an additional 20% surcharge on such transactions and believed this would have had a limited impact on the property market. Crazy stuff.

  1. the Annual Tax on Enveloped Dwellings (”ATED”): This provided for an annual tax levy on the structure based on its value. This starts at £3,600 per annum for a property worth between £500k and £1m and ratchets up to an eye-watering £226,960 if the property is worth £20m. Again, if the Company lets or develops the property for sale then ATED should not apply.

Of course, there is no suggestion that John Caudwell owns the property through a company and there would be no real tax benefit of him doing so.

CGT on the Expansion

Around the same time, the Government made its first foray in to levying CGT on non-residents with the imposition of ATED-related capital gains.

This brought in to charge any capital gains which arose whilst the company was within the ATED regime. The rate being 28%. Prior to this, the enduring principle of UK CGT was that generally there is no exposure to UK CGT unless the person disposing of the asset was resident in the UK.

Of course, this was subject to anti avoidance provisions.

Then, from April 2015, CGT’s front door was well and truly kicked in with the introduction of non-resident CGT (NRCGT).

These new rules meant that a non-resident person selling a direct interest in a UK residential property was within the scope of UK CGT. Only any part of a gain that arose after this date was chargeable, meaning there was effectively a rebasing of the property to 6 April 2015.

These were further extended with effect from April 2019, meaning that indirect interests (eg shares in property rich companies) were also included in the net.

The changes affect non-UK resident property owners. Again, I do not believe Mr Cauldwell claims to be non-resident (and Stoke does count as being in the UK, before anyone starts on that one, OK)

SDLT Creep

In addition to this SDLT rates have increased substantially over this period (SDLT receipts have more than doubled in well under a decade).

As an added bonus, we also have the 3% surcharge where an ‘additional property’ is being acquired. For the purposes of determining whether this surcharge applies then homes overseas are counted.

Although one assumes that Mr Caudwell will use this property, if he had retained his old property without selling it, then he would be in the scope of this additional 3%. However, the eagle-eyed will note that the Mayfair property was purchased before the new rules came in to force in April 2016. So our excitement can subside.

One interesting point is that Mr C reportedly paid £87m for the property and £65m renovating the property. Of course, only (only!) £87m of this would be subject to SDLT. In today’s money this would result in £10.3m winging its way to the Treasury.

This demonstrates how purchasing land, derelict property or a Mayfair ‘fixer up-er’ and developing it can be very efficient from a SDLT point of view.

As if the above is not enough to make the pips squeak, the Government also seems to have resurrected Theresa’s May’s new surcharge for non-resident property purchases. I am sure we will hear more on this on 11 March.

Inheritance tax (“IHT”)

The cherry on the cake was the revision of the definition of ‘excluded property’ for IHT purposes which was grafted on to the wider reforms for non doms.

What does this mean?

Well quite simply, where the underlying asset was UK residential property, the use of a non-UK company (often topped with a non-UK trust) is now ineffective. These assets would fall within the estate of our client. The introduction of this change means that ATED is no longer necessary. However, it has not been repealed and now a person is in a worse position if the property is held through a company than if it is held directly. This is some turnaround.

Again, this will not affect John Caudwell as he is UK domiciled. As such, the property will fall in to the IHT net. It is an IHT time bomb.

Perhaps the reason why he was using all that gold leaf was to try and make sure it becomes a ‘heritage property’!

Charitable Purposes

Mr Caudwell was keen to point out that his new Mayfair pad – with a ballroom second to only Buckingham Palace – would be the engine room for his charitable foundation, Caudwell Children.

Mr Caudwell could be heard whilst compering one of his charitable bashes the tax relief available on donations.

We’re happy to help with a handy guide to this!

If you watched the programme about John Caudwell and his mega Mayfair property, or have any property tax related queries, then please get in touch.

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