The Government have published revised ARPT legislation and issued the draft legislation in respect of CGT and the changes to the 15% rate of SDLT. We commented on the first draft of the legislation in our previous Law Now entitled “Residential Property Tax – On target?” Click here to view the previous article. Broadly the changes introduced are to align the three taxes which attack a non-natural person from the point of acquisition of high value residential property, through its period of ownership and on its eventual disposal. The changes are explored in greater detail below.


First, the Government has amended the relief from ARPT for a property rental business to make it clear that it applies to companies carrying on a property rental business even if the rental income is subject to income tax instead of corporation tax. The revised legislation now makes it clear that the relief also applies to non-UK resident companies with UK property rental income but without a UK permanent establishment.

Secondly, the Government have introduced further reliefs. Notably these apply to properties acquired by financial institutions carrying on a business that includes money lending and properties acquired and then leased by a financial institution where alternative finance relief applies i.e. Sharia compliant finance.

Thirdly, an entity subject to ARPT now has to file an ARPT return even if no charge arises because a relief applies. ARPT returns are filed by 30 April of each chargeable period so the tax is due in advance for that chargeable period. The legislation clarifies that where ARPT would be chargeable but for a relief,“provisional relief” must be claimed by filing a “nil” return or by amending a return previously submitted. Any relief so claimed is subject to withdrawal if the conditions for the relief are not met during the period covered by the return.

15% rate of SDLT

The keys changes introduced by the draft legislation are:

  • All reliefs which apply to ARPT will also apply to the 15% rate of SDLT which is due on the acquisition of high value residential property in the UK. Reliefs have to be claimed by submission of an SDLT return; and  
  • The relief for property developers from SDLT will be aligned with the equivalent ARPT relief by removal of the requirement for the developer to have a two year trading history.

These changes do not come into force until Royal Assent of the Finance Bill 2013, which should be in July. The Government have not indicated whether these reliefs can be applied retrospectively.


The third limb of the package is the extension of the capital gains regime to non-natural persons disposing of high value UK residential property.

The key points to note in the draft legislation are as follows:

  • The charge will apply to gains on disposals of high value UK residential property on or after 6 April 2013.
  • Gains will be charged at the rate of 28% with no indexation relief.  
  • The extended CGT charge only applies to non-natural persons who are within the charge to ARPT. If the non-natural person is subject to the ARPT for only part of the period, the gain is apportioned accordingly and the extended CGT charge is only applicable to the gain apportioned to the APRT chargeable period. It is clear that the CGT charge does not apply to indirect holdings of property such as shareholdings in a property owning company.  
  • The charge applies to non-UK and UK resident companies and therefore where UK resident companies would ordinarily be subject to corporation tax (currently at 24%) on their chargeable gains, they will now be subject to the extended CGT charge. This means that they will be subject to tax at a higher rate with no indexation relief.  
  • The charge will only apply to gains on the property after 5 April 2013. There will be an automatic rebasing as if the non-natural person had acquired the interest on 5 April 2013 for consideration equal to the market value at that date. It is possible to elect out of rebasing by making an irrevocable election, so that the gain is calculated by reference to the property’s original acquisition cost.  
  • Tapering relief will apply to properties which are sold for just over £2 million. The lower of the actual gain or the tapered gain is charged to CGT.  
  • There are anti-fragmentation provisions to prevent avoidance of the CGT charge. This is achieved by a disposal of the property in tranches to fall below the £2m threshold.  
  • Losses will be ring fenced so they can only be set against post 5 April 2013 gains and the quantum of losses will also be restricted. If the amount or value of the consideration does not exceed the threshold, but the sums allowable as a deduction under section 38 TCGA 1992 do exceed the threshold, the consideration for the disposal will be treated as if it exceeded the threshold by £1.  
  • Under the current legislation, gains realised by non-UK resident companies can trigger a tax charge for UK residents under section 13 TCGA 1992. In such a case the CGT charge on the non-resident company will take precedence over any section 13 TCGA charge. However, the automatic rebasing at 5 April 2013 will only apply to CGT charges under the new regime.  


These provisions create more onerous obligations and administrative burdens on taxpayers. For example a taxpayer may have to obtain two property valuations; one for the extended CGT charge to determine market value of the property as of 5 April 2013 and one for ARPT to determine market value of the property as of 1 April 2012. Taxpayers will have to submit ARPT returns and SDLT returns even if they have the benefit of a relief. The extension to the CGT regime blurs the fundamental distinction between corporation tax on chargeable gains payable by companies and CGT on gains realised by individuals. It is not clear how these complex CGT provisions will work in practice.

Taxpayers potentially affected need to review the position. There is no ‘one size fits all’ solution and current arrangements should be considered on a case by case basis. Factors which need to be taken into account include:

  • Your long term intentions as to use and ownership;  
  • Existing latent gains in the structure which might be triggered on restructuring;  
  • Stamp duty/SDLT on a restructuring;  
  • Existing inheritance benefits of the current structure;  
  • Quantum of ARPT; and  
  • Confidentiality and asset protection considerations

HMRC estimate that there are 5000 properties which should be subject to ARPT of which half are held in UK companies. According to press reports they are monitoring compliance closely. However, the future still looks bright for non natural persons owning high value UK residential property. There are options available to deal with existing structures and new acquisition structures. This is not the end of the road for non natural persons owning high value UK residential property but the terrain is becoming more challenging!