The Government has today published Finance Bill 2013 and confirmed that the proposals announced in March this year are coming into force in April 2013.

The Government's overall aim is to penalise owner-occupiers who own their property through a corporate wrapper. To discourage these kinds of structures, there will be a new annual charge to be called the "Annual Residential Property Tax". It will apply from April 2013 to certain "non-natural" persons owning a dwelling worth over £2m. Capital Gains Tax (CGT) at 28% will also apply to certain non-resident non-natural persons that dispose of a dwelling worth over £2m after April 2013. It appears that the CGT charge will only apply to gains arising from April 2013.

For genuine property development and investment businesses, there will be new reliefs and exemptions, including reliefs from the 15% SDLT rate introduced in March 2012. However, the SDLT reliefs will inexplicably only apply from Royal Assent of Finance Bill 2013, likely to be in July 2013.

All £2m+ residential properties held by companies and other offshore structures should be examined now. Where the various reliefs do not apply, "de-enveloping" the property before April 2013 may be the best option.

From April 2013 we will have the following:

Various new reliefs from the 15% Stamp Duty Land Tax charge

On the one hand, there is good news: the Government has listened to feedback from landlords, developers and various others who were all hit by the 15% Stamp Duty Land Tax (SDLT) rate, but who it was accepted were not the target of the new rules. So we have various new reliefs from the 15% SDLT rate in Finance Bill 2013. On the downside, the rules will only have effect from Royal Assent of Finance Bill 2013. This is likely to be in late July 2013. So there will remain a limbo period between now and July 2013 where developers and landlords (who would otherwise be able to claim relief and reduce their SDLT rate to 7% on new purchases) will remain stuck with the 15% rate.

The proposed new reliefs from the 15% rate will apply to:

  • Genuine commercial landlords (provided that the property will not be occupied by certain "non-qualifying persons");
  • Genuine property traders and developers;
  • Certain properties which are open to the public;
  • Certain dwellings to be occupied by employees; and
  • Farmhouses

Each relief contains detailed conditions and should be examined carefully. There are also complex clawback provisions which can reinstate the 15% charge if certain events occur in the three years after the acquisition of the property.

Introduction of the new Annual Residential Property Tax

Certain non-natural persons that own residential property with a value over £2m will be caught by a new annual tax called the Annual Residential Property Tax (ARPT) with effect from April 2013.

The charge will be based on the valuation band which the property falls in, ranging from £15,000 to £140,000 per year. The bands remain as originally proposed: £2m-£5m, £5m-£10m, £10m-£20m and £20m+.

The draft legislation contains various new reliefs for genuine property rental businesses and trading companies. These are similar to the proposed SDLT reliefs noted above, but will apply from April 2013 when the new ARPT charge comes into force.

The ARPT will apply if the dwelling is owned or acquired after 1 April 2013 or if it is built or converted to such a dwelling after this date. As originally proposed, the valuation date for properties owned on 1 April 2013 will be 1 April 2012 (or the value on acquisition if acquired after 1 April 2012). The first self-assessed tax return for the year 2013-14 will be required on 31 October 2013. After this, returns will be due on 30 April each year.

The ARPT was expected, notwithstanding the Chancellor's comments last week that there would be no general mansion tax. The Government has sensibly listened to industry representations and has tried to limit the scope of the tax to owner-occupiers only. However, those with not caught by the new rules will still have to file a tax return claiming any exemption: you cannot simply ignore the new rules.

Introduction of a new Capital Gains Tax charge

Contrary to the thoughts of some commentators, the Government is to press ahead with a new Capital Gains Tax (CGT) charge at the rate of 28% for non-resident non-natural persons which own high-value residential property. It will affect the same entities that are caught by the ARPT. Interestingly, offshore trustees now appear to be outside the ambit of the CGT charge although it is hard to be sure as draft legislation has not yet been published.

On the plus side, there will be a statutory re-basing, so that the CGT charge will only apply to future gains arising from April 2013. That is welcome relief for those who were worried that CGT would be payable on historic gains.

Whilst not unexpected, this is a significant announcement. The legislation required to implement this change (expected in January 2013) will be complex and it will be a challenge to have the legislation in a suitable form by the time of Budget 2013 (likely to be in late March 2013). The re-basing of properties (so that the new CGT rules will only catch future gains) is a welcome amendment to the original proposals. However, it still may not remove one of the obstacles to "de-enveloping".


For those caught by the new rules, the instinctive reaction of many will be to dismantle the structure and transfer the property into personal ownership. And this is what the Government wants people to do. However, it is important to balance the pros and cons of dismantling the existing structure, with the costs and benefits of maintaining it. In many cases it won't be a straightforward comparison with an obvious conclusion. Every situation is different and the following factors will be important:-

  • The residence and domicile status of the ultimate owners
  • How long before the property will be sold?
  • Is it occupied by the family or rented out?
  • Is the company an established property development company?
  • Is it mortgaged?
  • How much is the property worth?
  • Are privacy and asset protection important?
  • The age, state of health and marital status of the ultimate owners.

Even if the conclusion is to dismantle the existing structure, the "de-enveloping" process will not always be straightforward or quick. Where there is a mortgage, or the property is already showing a large gain, or there are other assets in the company then additional obstacles will arise. In these cases specialist advice should be sought as soon as possible so that any dismantling can be completed before April 2013 and without itself triggering a tax charge.