Company structures

Already the tax changes have resulted in changes to buyer behaviour. Share transfers, which were relatively uncommon prior to the Budget, appear to have all but been extinguished.

Our analysis of a sample of 172 second hand sales of London property worth over £2million+, which were conducted since the Budget, identified only two share transfer deals, whereas they accounted for 8.7% of such transactions in 2011 (12.4% in prime central London).

However, to date some buyers have continued to put property into a corporate structure, accepting the increased rate of stamp duty, the ARPT and possible future capital gains tax, because of a desire to retain their anonymity and to protect their wider tax position.

Company purchases of £2million+ London housing have accounted for just over 1 in 20 (5.3%) of such purchases post-Budget. Those which have occurred have been heavily concentrated in central London (accounting for around 8.8% of £2million+ transactions in this location compared to 14.0% in 2011). Generally, this activity has been concentrated in higher price bands where housing wealth is a smaller proportion of the owners total wealth and the tax charges are easier to absorb.

In the new build market, off-plan exchanges have typically been in personal names, with buyers waiting to decide whether to use an SPV on completion pending the outcome of the consultation.

Looking forward

We estimate that in the two core prime central London boroughs of Kensington and Chelsea and the City of Westminster alone, as many as 3,000 units with a current day value of £17.3billion and an original purchase price of £11.6billion have been put into offshore corporate structures over the past 10 years.

The fact that capital gains tax will not be payable on gains made between purchase and 5 April 2013, as many had feared, is very welcome news.

Though we have seen a handful of properties brought to the market because of the tax changes, this will prevent the market being flooded with stock from long-term owners seeking to realise their gains ahead of this date.

It is currently unclear whether the package of measures will encourage owners to de-envelope.

For many, particularly non-UK residents who own through a corporate vehicle, that will be a trade off between the cost of annual charges and the potential for CGT on gains arising after April 2013 versus the potential exposure to inheritance tax that would result from holding their property in a personal name.

For UK residents who have used an offshore corporate ownership vehicle, the situation is likely to be more complicated, as gains within the company are attributable to the individual (including those accrued pre-April 2013). This is likely to deter de-enveloping, as to do so would crystallise an existing, often substantial, capital gain.

Some will look to make effective use of debt set against the property and minimise their exposure, whilst others are likely to employ other structures to protect their position. Trust structures offer one option as they fall outside of the ARPT, however, they are not as efficient in inheritance tax terms.

We expect buyers to be deterred from making purchases using corporate vehicles, though the post-Budget evidence is this will not end completely.

Either way, there will be an increased exposure to taxation, which we expect to be absorbed by the prime residential markets over time.

We believe this will result in a period of static house prices (as opposed to price falls) in prime central London over the course of 2013, an assumption already reflected in our published forecasts.