Tax implications of “enveloping”

Holding residential property within an envelope has a number of potential tax implications:
Stamp Duty Land Tax (SDLT)
When a property is first purchased by the non-natural person, or enveloped, SDLT will generally be paid. On residential properties over £2 million, this will be paid at the new 15 per cent rate introduced at Budget 2012. On subsequent transfers however, if ownership of the company is transferred through a share transaction, rather than ownership of the property being transferred by a sale of the property itself (a land transaction), the transfer is not liable to SDLT as the property itself has not changed ownership, although the ‘economic’ ownership has changed.
Stamp Duty & Stamp Duty Reserve Tax (SDRT)
Broadly, where a company is incorporated in the UK the transfer of the shares is chargeable at 0.5 per cent of the consideration given. Where a company is registered overseas no Stamp Duty or SDRT is payable unless the transfer of shares of that non-UK incorporated company is effected in the UK. Companies used for enveloping are frequently incorporated outside the UK.
Capital Gains Tax (CGT)
Unlike residential properties disposed of by individuals, gains on property disposed of by or through a UK resident envelope do not generally benefit from Private Residence Relief (which exempts from CGT many disposals of residential properties by individuals). Gains accruing to a non UK resident person are generally not taxed.