The government last week published draft legislation to be included in the Finance Bill in the spring of 2013. It introduces a number of amendments to the 15% Stamp Duty Land Tax rate (introduced in March 2012) and brings in the anticipated annual property charge (now titled the Annual Residential Property Tax). There is still more detail to follow and the Capital Gains Tax (“CGT”) draft legislative changes are deferred until January 2013 although some of the policy behind the changes was revealed last week.

The key points to note are as follows:-

Annual Residential Property Tax (“ARPT”)

A new annual charge will be levied from April 2013 on residential properties valued in excess of £2 million that are held by non-natural persons (i.e. companies, partnerships with corporate members and collective investment schemes) whether UK based or elsewhere. This additional charge is seemingly being introduced to further encourage owners to ‘de-envelope’; to encourage direct property ownership. The ARPT will be levied at the following rates:

  • £2 million to £5 million at £15,000;
  • £5 million to £10 million at £35,000;
  • £10 million to £20 million at £70,000; and
  • £20 million + at £140,000.

Some comfort can be drawn though in respect of a number of reliefs that are going to be introduced, in particular offering relief to genuine businesses carrying out genuine commercial activities. These more particularly relate to commercial transactions involving high value residential properties using a non-natural person. This includes non-natural persons acquiring residential property as development property (and the current proposals no longer require a company to have a 2 year history as a property development business to qualify) or for commercial letting. The relief does not apply to transfers to a ‘connected person’ (although there is an exception for a working farmer occupying the farmhouse).

In principle, these situations will not only pay the lower SDLT rates but will also be exempt from the annual charge.  This also extends to historic houses which are open to the public or otherwise used for commercial activities as specified, but not for SDLT purposes. If the purpose for which the property is held changes during the year then the relief will be proportionately withdrawn.  

The 15% Stamp Duty Land Tax (“SDLT”)

In April 2012 the rate of SDLT on high value residential property (property worth over £2 million) acquired by non-natural persons increased from 7% to 15%. The draft legislation now introduces amendments to the charge to include reliefs to mirror the ARPT (as above). The reliefs are very welcome as they effectively exclude property rental businesses from the charge. It should be noted that they are however subject to certain clawback provisions and that they also do not come into effect until April 2013.

Capital Gains Tax

The government confirmed that the territorial scope of CGT will be extended from April 2013 to include disposals by non-natural persons of UK residential property worth in excess of £2 million. The tax rate will be 28% on any gain. The charge is not as wide as was originally anticipated and it seems that it will not extend to non-resident trusts. Importantly, however, such non-natural persons will effectively be able to rebase to April 5, 2013 values, so this will exempt the non resident non-natural person itself from any liability on gains up to the value on that date. However, if there are UK resident occupiers, there are still potential problems and implications in this jurisdiction, especially in de-enveloping to avoid future CGT and annual charges. In addition, the government is considering applying the same 28% CGT rate to high value residential properties owned by equivalent UK companies, instead of corporation tax, and is requesting feedback on this.


Should individuals who currently own a property through an offshore structure now transfer that property into their own names in order to avoid the ARPT? The answer will depend on individual circumstances. The question of whether or not SDLT may be payable on such a transfer, not least where the beneficial owner(s) of the structure and the individuals into whose name the property is transferred are the same people, is one that will require careful consideration based on the specific facts of each case.


The above only very briefly summarises the proposed changes, and it should be borne in mind that some of the extent and implications of these are still to be worked out. With further detail not being provided until the New Year, the time to reorganise, or even just to seek advice, before April 2013 is very limited.

These changes will have implications for many owners using non-natural person vehicles and may well have a significant effect in relation to offshore trust and/or company structures set up principally for IHT planning purposes. Whilst these may well remain effective for IHT purposes, the changes could well not only negate any other tax benefits but could cause additional tax liabilities or accelerated tax implications in attempting to unscramble structures. Anyone who thinks they might be affected by any of the above should therefore contact our London or Reading offices to make arrangements for a preliminary review.