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The Chancellor, George Osborne has used the budget to drop a huge bombshell on the UK mortgage industry.

Buying UK residential properties through a company or offshore trust has been actively promoted by intermediaries, as this helps their clients avoid large stamp duty bills, particularly when using bridging finance or making cash purchases. This practice has been perfectly legal and acceptable…until now!

During yesterday’s budget the chancellor announced a 15% rate of stamp duty applied to residential properties over £2 Million (GBP) bought under a corporate envelope ; a consultation on the introduction of a large annual charge on those £2 Million (GBP) residential properties which are already contained in corporate envelopes; and, to ensure that wealthy non-residents are also caught by these changes, a capital gains tax on residential property held in overseas envelopes.

Mr Osborne confirmed that the government will consult on the details of a general anti-avoidance rule and legislate for it in next year’s Finance Bill. Stating that he found “…tax evasion and aggressive tax avoidance…morally repugnant”.

The chancellor also signalled that the government may even act retrospectively on avoidance measures including the use of companies and offshore trusts to avoid stamp duty.

He said: “A major source of abuse – and one that rouses the anger of many of our citizens – is the way some people avoid the stamp duty that the rest of the population pays, including by using companies to buy expensive residential property. I have given plenty of public warnings that this abuse should stop. Now I’m taking action.”

The chancellor’s move is reported to have come about following a recommendation by Graham Aaronson QC that such a rule would improve the government’s ability to deal with tax avoidance without damaging the competitiveness of the UK as a place to do business.

Mr Osborne added: “I will not hesitate to move swiftly, without notice and retrospectively if inappropriate ways around these new rules are found. People have been warned.”

Director of the Association of Mortgage Intermediaries, Robert Sinclair, said: “I’ve been saying for a long time that those promoting this avoidance will get us into trouble. But most worrying is that this is the first time I’ve ever heard government say that they’ll come and do you for something retrospectively. I think the move from avoidance being acceptable to morally repugnant is probably the single biggest shift in the British tax system I’ve seen in my lifetime. The question will be where we draw the line given that there are schemes that actively promote avoidance such as the ISA.”

Miranda Cass, tax partner at Bristows, said the introduction of a general anti-avoidance rule should be welcomed by all but the most aggressive of tax planners provided that legitimate tax arrangements are not affected. The full implications of the rule have not been analysed yet but any risk that this rule will make transactions more difficult or more costly to plan for or to carry out will be a serious impediment to any growth in the economy. For the Chancellor to be introducing new and complex rules at the same time as drastically cutting the number of staff at HMRC does not make for a happy combination. Advisers are bound to be concerned that for every aggressive tax scheme this rule defeats, it will hinder or prevent two or three perfectly innocent transactions.”

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