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Because of the differential between income tax and corporation tax rates, holding property in a non-resident company can result in a lower tax charge. In addition, companies are not subject to inheritance tax (IHT).

To stop such tax planning the Finance Act 2013 introduced three tax charges, the main one being an ‘Annual Tax on Enveloped Dwellings’ (ATED) held by ‘non-natural persons’ (i.e. companies). Currently properties valued in the £2m to £5m band are charged £15,400 per annum, the bands increasing such that properties valued at over £20m are charged £143,750.

As from 6 April 2015 a new band will be introduced, such that properties valued at above £1m and up to £2m will fall within the regime and be taxed at £7,000. A further band catching properties valued at above £500,000 and up to £1m will fall within the regime as from April 2016. There is also a related capital gains tax (CGT) charge on sale and a separate Stamp Duty Land Tax charge on acquisition. For now, property letting businesses and property developers do not have to pay these taxes but the government intends that a new CGT regime for non-residents (not just companies) owning UK assets will commence in April 2015.

Although the taxes are aimed at the foreign wealthy property investor, it will also affect all British Nationals temporarily living abroad and those emigrating and retiring abroad as many use the facility of placing property within ‘envelopes’. However, this approach may still find favour for those wishing to save IHT.