Charging offshore companies stamp duty for owning mansions in Britain has brought an unexpected tax windfall.
The move to close a loophole that allowed celebrities and the wealthy to avoid stamp duty on multi-million homes owned by offshore companies was expected to raise around £20 million a year.
Instead the Treasury has revealed the action has already raised £92 million and is on course to bring more than £100 million a year into government coffers.
Before the loophole was plugged, wealthy home owners could sell the companies owning the property paying little or no stamp duty on the home’s value.
That’s because the value of the transaction was based on the value of the shares and not the value of the home. As the shares had a nominal value, the sale of most homes resulted in no stamp duty paid.
Unfair to ordinary home buyers
Now, offshore companies owning homes worth more than £2 million must pay an annual stamp duty charge of between £15,000 and £140,000.
Ignoring the new law could mean a fine of up to £1,000 for the home owner.
Announcing the levy in the 2012 Budget, Chancellor George Osborne predicted around £20 million would be raised. In December 2013, £92 million had already been paid by wealthy home owners.
Danny Alexander, Chief Secretary to the Treasury, said: “Making everyone pays the right amount of tax is part of our mission to build a stronger economy
“It’s unfair that wealthy homeowners could avoid paying tax by having an offshore company own their properties while everyone else has to pay stamp duty when buying a home.
“The move has proved effective and has raised five more times tax than expected.”
Annual enveloped dwelling tax
The Treasury estimates more than 5,000 people own homes worth more than £2 million each through an offshore company.
Not only did holding ownership in a company avoid stamp duty until the new measures were introduced, but also masks ownership.
Prior to April 2012, a personal property buyer could purchase a £2.5 million home and pay stamp duty at a rate of 7%, leading to a bill of £175,000, while an offshore company would pay nothing.
Now, companies purchasing a property worth more than £2 million pay stamp duty at 15% plus and annual charge based on the value of the home, called the annual enveloped dwelling tax.