CHANGES IN UK TAXATION OF PROPERTY APRIL 2015

CHANGES IN UK TAXATION OF PROPERTY APRIL 2015
Introduction
Since 2011, The UK government has introduced tax changes to any properties not held
in your personal name.
As of April 2015 the Capital Gains value will be crystallised and the below table shows
the various UK taxes that individuals owning UK property will be exposed to, depending
on how the property is held.
Where will you be?
SDLT
Residential
Property
Income Capital
Tax
Gains
Tax
IHT on
Death
ATED
POAT
Income
Tax
10Yr
Anniversary
IHT Charge
Held by:
Personal
Yes
20%
28%
40%
No
No
No
Nominee
Yes
20%
28%
40%
No
No
No
Corporate
Yes
20%
20%
No
Yes
No
No
Trust
Yes
20%
28%
No
No
Maybe*
10%
Pension
Yes
20%
No
No
No
No
No
* Dependent upon use of trust property i.e. occupancy by trust settlor or family
Almost all of the property ownership and wealth protection structures available will now
be subject to some level of taxation on UK residential property holdings. Pensions are
the only form of ownership that has not been affected by the latest changes.
Please note that this information does not constitute advice of any kind and tax advice should be taken by a
client prior to entering into a QNUPS
CHANGES IN UK TAXATION OF PROPERTY APRIL 2015
The most notable taxes are:
Capital Gains Tax (CGT)
Capital Gains Tax is the levy the Government makes when you sell or dispose of certain assets on
which you make a large profit.
The probable two most common such assets are on the sale of shares, and properties which are not
your main residence (perhaps a property you have been letting).
The basic rule is to tax the difference between what you bought and sold for, taking into account
any extra costs you incurred during your ownership.
Example
House in London
Sold
£5,000,000
Bought
£2,000,000
Gain
£3,000,000
Tax @ 28%
£840,000
The new Charge on Non-residents from 5th April 2015 introduced this tax on residential properties
in the UK.
The main difference being that it is only gains from April 2015 that will be taxed. So Growth in value
before that date will not be taxed.
Inheritance Tax (IHT)
Inheritance Tax is paid if a person dies and their estate (their property, money and possessions) is
worth more than £325,000 when they die. This is called the ‘Inheritance Tax threshold’.
The rate of Inheritance Tax is 40% on anything above the threshold.
When someone living abroad dies it applies to all assets in the UK whether or not you live, or have
lived, in the UK. Their family:

has to pay Inheritance Tax on their assets in the UK.

won’t have to pay UK Inheritance Tax on their assets outside the UK
If the person has lived in the UK then the Tax will be due on all their worldwide assets.
Example
House in London
Value at Death
£5,000,000
Less Allowance
£325,000
Taxable Amount
£4,675,000
Tax @ 40%
£1,870,000
Please note that this information does not constitute advice of any kind and tax advice should be taken by a
client prior to entering into a QNUPS
CHANGES IN UK TAXATION OF PROPERTY APRIL 2015
Example 1 - Changing
the Ownership of UK
residential property.
Situation
Client holds property in personal trust or
corporate ownership
Action Taken
 The
client established a Qualifying Non-UK
Pension Scheme (QNUPS)
 The client sold the property to the QNUPS in
exchange for an annuity (not a pension or life
annuity) issued by the QNUPS in full
satisfaction of the price.
 The client pays sufficient contributions to the
Client is not UK Domiciled Or Resident
QNUPS to pay the annuity instalments.
Asset is not a let property
Resulting Benefit:
Property is worth £5m, grows at 12.5%
annually and is held for 5 more years before
either event occurs

Tax Cost by ownership type
Scenario 1 - Sale
ATED
Personal
Nil
Nominee
Nil
Corporate
Trust
Nil
QNUPS
Nil
£1,067,278
£1,067,278
£1,067,278
£1,067,278
£762,342
£941,842
£1,067,278
£1,067,278
Nil
Nil
Professional Costs to Move to QNUPS
£
175,000
Net Saving on Case
If Corporate
£
£
892,278
766,842
178,456 £
117,468 £
178,456
153,368
Per Anum Saving
If Corporate
£
£
£
35,900 £
Scenario 2 - Death
ATED
IHT on
death
Total
Personal
Nil
£3,524,683 £3,524,683
Nominee
Nil
£3,524,683 £3,524,683
Corporate
 There is no Inheritance Tax on the value held
in the pension.

Capital Gains Total
£179,500
The individual's wealth is protected in an
offshore pension structure.
£179,500 Nil
£179,500
Trust
Nil
Nil
Nil
QNUPS
Nil
Nil
Nil
Professional Costs to Move to QNUPS
£
Net Saving on Case
£ 3,349,683
175,000
Free of any 55%
Benefit tax charge
Lump
Sum
Death

There is no Capital Gains Tax levied on
offshore pensions from April 2015.
 Stamp
Duty Land Tax (SDLT) is minimised
on the acquisition.

No Annual Tax on Enveloped Dwellings
(ATED)
 No 10 Year Anniversary Charge
 No Pre-Owned Asset Tax (POAT) Income Tax
Charge
 The
asset will be uplifted to current market
value in the hands of the QNUPS;
 Provided
action is taken before April 2015,
there will be no CGT to pay.

The client can access up to 100% of the
capital in the fund at any time.
Please note that this information does not constitute advice of any kind and tax advice should be taken by a
client prior to entering into a QNUPS
CHANGES IN UK TAXATION OF PROPERTY APRIL 2015
What is a QNUPS?
A Qualifying Non-United Kingdom Pension
Scheme (QNUPS) is a trust defined as a
Pension with special tax exemptions and
protected by international treaties.
Unlimited
contributions
reporting status
and
A QNUPS has the advantage that as it
does not hold UK tax relieved funds, there
are no limits on the fund size. As monies
It is a “member” directed or selfmanaged pension, governed by a trust
deed. Assets in the Fund are held for the
benefit of the designated member.
Since a QNUPS is a Trust Structure the
legal owners of the assets are the
trustees who hold them for the members
benefit. Upon the members death the
trustees retain the assets and thus they
will fall outside of the members estate.
Suitability
A QNUPS can be utilised for bespoke
planning.
Since there is no limit on
contribution size a QNUPS can be utilised
as a main or a supplementary pension. A
QNUPS may also have appeal to clients
looking to shelter assets and also older
clients for estate planning purposes.
Investment
A QNUPS offers greater discretion over
investment choice compared to that of
most UK based pension schemes.
Investment options are wide-ranging and
include the ability to invest in both
standard asset classes such as cash,
stocks, bonds and life policies and also
non-standard asset classes such as
residential and commercial property,
land, private equity and secured loans. It
is also possible for an investment advisor
of the client’s choice to be appointed.
settled into the plan are non-tax relieved
assets, there is no requirement for the
trustee to report to HMRC.
Benefits
QNUPS are fully available to UK resident
and non-resident members. There are no
age restrictions for contributions made or
benefits taken and QNUPS can facilitate
efficient
succession
planning
for
members. Loans of up to 30% of a fund
are available to members and assets in
the plan grow free of taxation subject to
any withholding taxes. QNUPS provide
flexibility on drawing benefits as the plan
proceeds are paid out gross and there is
discretion over distribution of the fund
upon death of the member.
Exit
There are no penalties or hidden exit
charges upon closure or transfer of the
scheme. The pension benefits of the
member under the scheme are payable
no earlier than at the age of 55. On
reaching this age, it is possible to take a
lump sum of 25% of the fund.
Please note that this information does not constitute advice of any kind and tax advice should be taken by a
client prior to entering into a QNUPS
CHANGES IN UK TAXATION OF PROPERTY APRIL 2015
Acquiring New UK
Property
Considerable care will need to be taken
to ensure that new acquisitions are to
unnecessarily exposed to the UKs
property tax regime.
Old structures are now more taxed than
ever before and prospective owners of
UK residential property need to utilise
the most tax efficient structures when
making the purchase.
The right structure, combined with the
right advice will provide wealth
preservation, anonymity flexibility and
tax efficiency for generations to come.
Consider the example below of a £2m
house purchased in April 2015
The House grows at 5% yearly and is
held for 10 years
Tax Cost by ownership type
The Death of the owner after 10 years
would attract tax of:
Scenario 2 - Death
ATED
Personal
Nil
Nominee
Nil
Corporate
IHT on
death
Total
£1,303,116 £1,303,116
£1,303,116 £1,303,116
£154,000 Nil
£154,000
Trust
Nil
Nil
Nil
QNUPS
Nil
Nil
Nil
Professional Costs to Acquire by QNUPS
£
Net Saving on Case
£ 1,233,116
70,000
The Purchase of the new property via a
QNUPS is less than the 10 year costs of
E placing it in a company.
The Stamp Duty payable on the
acquisition is also vastly reduced by the
use of this vehicle. Typically a 100%
saving.
Scenario 1 - Sale
ATED
Capital Gains Total
Personal
Nil
£352,181
£352,181
Nominee
Nil
£352,181
£352,181
£251,558
£405,558
£352,181
£352,181
Corporate
£154,000
Trust
Nil
QNUPS
Nil
Nil
£
70,000
Net Saving on Case
£
£
282,181
335,558
28,218 £
18,156 £
28,218
33,556
Per Anum Saving £
If Corporate
£
£
15,400 £

£153,750 for an Individual, Trust
or Nominee

£300,000 for a Company
Nil
Professional Costs to Acquire by QNUPS
If Corporate
Stamp Duty on the initial purchase
would have been:
But is reduced to Nil by the use of a
QNUPS.
Please note that this information does not constitute advice of any kind and tax advice should be taken by a
client prior to entering into a QNUPS
CHANGES IN UK TAXATION OF PROPERTY APRIL 2015
Meet the Team
Cornerstone Tax Advisors
is a niche firm of tax consultants specialising in advice on
Stamp Duty Land Tax (SDLT). They are experts when it
comes to property matters, advising you or your clients
on how to arrange property transactions in the most tax
efficient manner.
Established by David Hannah ACA CTA as a property tax
practice, David is an experienced Chartered Accountant
(1984), Chartered Tax Advisor (1987), and a member of
the Chartered Institute of Taxation (CIOT).
In 2006, David set up his own firm, Cornerstone Tax
Advisors, which now works with nearly 200 lawyers,
accountants, wealth managers, and financial advisors.
David also has expertise in Inheritance Tax. Capital Gains
Tax, Annual Tax on Enveloped Dwellings, Value Added Tax,
Capital Allowances.
Over the last 10 years, David has been consulted on over
4000 property transactions.
Bespoke Pension Management/
LLP Services
is a privately owned and managed financial services
specialist which was founded by the current Directors in
2004.
The company is focused on the provision of unique
product solutions, specialist tax planning and pension
administration for high net worth individuals.
Since 2004, LLP Services Limited has raised in excess
of £400 million for funds covering areas as diverse as:· Central London Triple ‘A’ rated Institutional
Property
· Distressed UK Commercial Property
· The renovation and letting of Central
London Residential Property
David features regularly in publications such as London
Property Magazine for which he writes a monthly column,
Prime Resi Magazine, Finance Monthly, The Telegraph, The
Resident Magazine and The Financial Times.
For further information, please contact
DAVID HANNAH ACA CTA
Cornerstone Tax
+44 1858 439 033
DHannah@ctatax.uk.com
www.ctatax.uk.com
JOHN RAWICZ-SZCERZBO
LLP Services
+44 7860 414 801
John@llpservices.com
www.llpservices.com
Please note that this information does not constitute advice of any kind and tax advice should be taken by a
client prior to entering into a QNUPS
CHANGES IN UK TAXATION OF PROPERTY APRIL 2015
Legal Advice Obtained - Extract from Barristers Opinion
IN THE MATTER OF
CORNERSTONE INTELLECTUAL DEVELOPMENTS LIMITED
and
QUALIFYING NON-UK PENSION SCHEMES
_________________________________
OPINION
__________________________________
1. I have been instructed by Cornerstone Intellectual Developments Limited (“Cornerstone”) to
consider the UK tax position of Qualifying Non-UK Pension Schemes (“QNUPS”).
2. In particular, I am asked to answer the following questions:
(1)
What is the inheritance tax position of a QNUPS?
(2)
How are contributions to a QNUPS treated?
(3)
How are the trustees taxed in respect of capital gains realised by the QNUPS?
(4)
What is the taxation position of QNUPS beneficiaries?
SUMMARY OF CONCLUSIONS
3. For the reasons set out in detail below, my conclusions in brief are as follows:
a)
b)
Inheritance tax and QNUPS:

Assets are outside the deceased estate on death;

Not relevant property i.e. periodic or exit charges;
Contributions to QNUPS:

No income tax deduction;

No tax charges on cash contributions;

Potential capital gains tax charges on contributions of chargeable assets
depending contributor’s tax residence;
Please note that this information does not constitute advice of any kind and tax advice should be taken by a
client prior to entering into a QNUPS
CHANGES IN UK TAXATION OF PROPERTY APRIL 2015
c)
d)
Taxation of QNUPS trustees:

Exempt from capital gains tax on disposal of UK assets;

Not affected by the changes in the Finance Bill 2015;
Taxation of QNUPS beneficiaries:

90% of the pension income paid is taxable; Capital sums paid are not treated
as income.
Please note that this information does not constitute advice of any kind and tax advice should be taken by a
client prior to entering into a QNUPS