Annual Residential Property Tax, Capital Gains Tax and SDLT
UK draft Finance Bill 2013 Published
Background
In the Budget earlier this year the Chancellor proposed the introduction of what he described as a fairer tax regime that targeted high value residential properties, that is those properties worth more than £2million. As part of the change was the introduction of a new 15% rate of Stamp Duty Land Tax (SDLT) on high value properties purchased by ‘non-natural persons’, with a lower rate of 7% applying to individuals who purchase in their own name.
A consultation paper was published which outlined further charges on high value properties held by non-natural persons, broadly offshore corporate entities, companies, partnerships and trusts. The proposals included the introduction of an annual charge and an extension to capital gains tax regime.
The draft Finance Bill 2013 has now been published and provides further details of the proposed changes. Although some details are still missing, in particular in relation to capital gains tax, there is some good news, as not all the proposals contained in the consultation paper have been included in the Bill.
Annual Residential Property Tax (‘ARPT’)
As expected the Finance Bill confirms that non-natural persons that hold UK residential property worth more than £2million will be subject to a charge to ARPT. For these purposes UK registered companies, as well as offshore companies, partnerships with corporate members and collective investment schemes will all be caught within the ARPT net. However, in a change to the proposals contained in the consultation paper the charge will not apply to high value residential property held by trusts or directly held by individuals in their own name.
Tax Rates
The four tax bands for property values proposed in the consultation paper have been adopted as follows:
£2m to £5m a proposed APRT charge of £15,000
£5m to £10m a proposed APRT charge of £35,000
£10m to £20m a proposed APRT charge of £70,000
Over £20m a proposed APRT charge of £140,000
The tax will be levied over the chargeable period running from 1st April to 30th March each year and will be apportioned when the property is acquired in the course of the year.
The thresholds are to remain constant but ARPT will be index linked and properties are required to be re-valued every five years from the first valuation of 1st April 2012 to ascertain the starting point of the charge. A free, pre-return banding appraisal is expected to be offered from June next year.
Owners are required to submit the first return on or before 1st October 2013 with payment due by the end of that month. From 2014 an annual deadline of 30th April will apply.
ARPT Exemptions
As indicated above individuals holding property in their own name, and trustees will not be liable to ARPT. In addition there will be exemptions for charities and businesses conducting genuine commercial activity, including property development, trading and rental properties.
Changes to Capital Gains Tax (‘CGT’)
From 6th April 2013, the scope of CGT is to be extended to apply to any gain realised on the disposal of a UK residential property by a non-UK resident non-natural person, where the value of the property is more than £2million. The charge to CGT will apply to UK registered companies, offshore companies, partnerships with corporate members and collective investment schemes.
It is encouraging that trusts will not be subject to this charge to CGT, however, in cases where offshore trustees hold high value UK residential property through an offshore company, there will be a charge to tax.
There are rebasing provisions, so that the charge to CGT will be calculated by reference to any gain in the value of the property from 6th April 2013, thus addressing concerns that CGT would be levied on the entire gain from the date of acquisition of the property, which would have introduced a significant element of retrospective taxation.
The proposal that there would be an immediate CGT charge if a non-UK resident individual disposed of shares held in a non-resident company that held high value residential property appears to have been abandoned in the draft legislation.
Tax Rates
The rate of CGT has been confirmed at 28% with limited taper relief for properties that are worth slightly more than £2million.
Exemptions
If a high value residential property is held by a non-natural person and is let to an unrelated person on arms-length commercial terms or has been acquired for development or for use as a trading activity, eg as a hotel, it will be exempt from:
- the annual residential property tax;
- the 15% stamp duty land tax; and
- the extension to CGT.
Timescale
It is intended that these changes will come in effect on the 6th April 2013 with the draft legislation setting out the detailed capital gains tax rules expected early in the New Year, probably in late January 2013.
Stamp Duty Land Tax
The Finance Bill also introduces some minor amendments to the 15% rate of SDLT on purchases by non-UK resident companies of high value residential properties.
Comment
The draft Finance Bill is not as far reaching as the consultation paper suggested it might be.
There is good news for non-UK resident trustees that directly hold high value residential property, as neither the annual charge nor the extension of CGT will apply, although they will have the 10 year periodic charge to take into consideration. Moreover, the proposal to introduce a general ‘mansion tax’ on residential properties worth more than £2 million has not been pursued.
The proposed changes to CGT have largely been included as expected, but we are pleased to see that the tax will only apply after the rebasing of the gain, that is on gains accruing after 6th April 2013.
To enable them to decide on a strategy each owner will need to review their own personal circumstances taking into consideration elements such as their age, residence, domicile, value of the property, succession planning, and future plans for the property. Thought will need to be given rapidly to any restructuring which might be necessary to take into account these new rules. If a corporate liquidation is required it is best to start organising this process soon to ensure that it is completed in time to meet any deadlines.
For more details on tax and estate planning services provided by Rosemont International companies see: http://www.rosemont-int.com/our-skills/tax-planning-/