In the annual Budget in March 2012 the UK Government launched a three pronged attack on high value residential properties (worth over £2 million) owned by companies.

  • From March 2012 there has been a 15% rate of stamp duty land tax on transfer into the company.
  • Property owners will face an annual charge (known as Annual Residential Property Tax) from 1 April 2013 at the following rates (which will increase in line with inflation):

Click here to view table.

  • Capital gains tax (CGT) is due on future disposals of property from the company.

Having considered responses to its recent consultation, HM Treasury have now produced draft legislation which gives us a significantly more detailed understanding of these proposals. Whilst the main elements of the charge are being introduced as expected, the measures have been diluted in several ways.

  • Any gain in the value of the property up to 6 April 2013 will be ignored when calculating the CGT charge;
  • CGT will be at 28% as expected, but with tapered lower rates for properties worth between £2 million to £5 million;
  • The CGT charge will not apply to offshore trustees;
  • Contrary to HM Treasury's earlier proposal, there is no CGT on transfer of shares in property holding companies; and
  • The legislation includes wider exemptions than were anticipated. In particular, property development companies are exempt (it was previously thought that they would only be exempt if they had been operating for a two year qualifying period). Rental property businesses are also exempt (provided that they rent to third parties).

There are unlikely to be any further significant changes to this draft legislation and we advise that anyone who is potentially affected by these changes takes advice to assess whether any action is required before April 2013. If it is, we recommend that any restructuring begins in early January to ensure that it is completed in time. Possible solutions may involve, for example, remortgaging, liquidating companies and transfer to shareholders. These solutions are likely to take months rather than weeks to implement.

Transferring the property to an individual

The most comprehensive solution is to transfer the property from the company to the individual owner. This ensures that the new rules do not apply. However, it may not be an appropriate solution for a number of reasons. For example:

  • There may be an immediate CGT charge if the shareholder (or any trust beneficiary) is UK resident
  • There is a possible stamp duty land tax charge if the property is mortgaged (and it may be difficult to remortgage as an individual)
  • In the absence of further planning, there is likely to be a UK inheritance tax liability if an individual owner dies in possession of the property
  • The owner may need an English Will for effective succession planning
  • The owner’s name will be on a public register at HM Land Registry resulting in a loss of anonymity
  • This may cause tax or other difficulties in the shareholder’s country of residence


If the property owner wants to transfer the property to himself but is concerned about loss of anonymity he can register the property in the name of a nominee company which is named on the title at HM Land Registry. For all tax purposes, the individual owner is treated as the owner of the property so that the new rules do not apply. However, the owner will need to be prepared to file a form with HM Revenue and Customs in October 2013, declaring his ownership of the property. We do not yet know how much information he will need to disclose on this form.

Doing nothing

As a result of the problems with unwinding the structure, some property owners may decide that it is better to keep the structure in place and pay the annual charge.

Direct Trust ownership

It is possible for trustees to hold the property directly rather than through a company. The new rules would not apply even if the trustee is a company. However, this needs careful planning to prevent UK inheritance tax charges. Offshore trustees may also be unwilling to hold property directly, given the risk of unlimited liability.

Ownership through a partnership

Partnership structures are unlikely to provide any significant tax advantages but they can be used as part of a bespoke solution to provide a succession planning vehicle, limited liability or anonymity for example.