Government Seeks to Close Tax Loophole for Homes Bought Through Offshore Companies

Categories Blog, Inheritance Tax

Official government estimates have revealed that approximately five thousand British homes, each costing over £2 million, are held in a way that allow their owners to substantially reduce their tax bills.

Using a statutory tax exemption for non-domiciles, wealthy home owners are able to avoid UK stamp duty and Inheritance Tax.  These luxury, high-value properties are mostly located in London and around five hundred of the homes, collectively worth approximately £1.6 billion, were purchased through corporate schemes in 2011.

According to Land Registry data, in particular areas of the capital approximately five percent of properties are held offshore, with the practice also having been employed in Leeds, Manchester, Derby and other regions.

Whilst not being illegal, putting expensive homes into corporate hands is believed to have cost the Treasury billions of lost tax revenue.  This is mostly from Inheritance Tax as the loophole enables all foreign domiciled companies to escape the forty percent charge on the property value upon death of the owner.

Some tax advisors claim that well-off home owners may use special purpose vehicles not only for tax avoidance purposes but also to protect their privacy and assets.  Still, is this really fair on lower income families?

Chancellor George Osborne has pledged to curb this practice by introducing legislative changes, which include a new fifteen percent rate of stamp duty land tax on all properties worth over £2 million that are purchased in this manner.  He has also planned to introduce an annual charge on properties worth in excess of £2 million and proposed changes to the capital gains tax regime.