The Government has confirmed that it will be introducing a new Annual Residential Property Tax (ARPT) for residential property with a value of at least £2m and will be extending the scope of Capital Gains Tax (CGT) for such properties. This follows increases in Stamp Duty Land Tax (SDLT) earlier this year. The way in which each of these taxes will apply is explained below but first it is important to note that the new rules will only apply to a very limited number of properties.
For all three taxes the new regime applies to homes worth at least £2m owned by a company, a partnership with a corporate member or a collective investment scheme (non-natural persons). It does not apply to properties owned directly by trustees or by nominees. The regime will not apply to properties which are being exploited for certain commercial purposes, including where they are being rented to third parties or form part of a property development or property trading business. It will be necessary to consider carefully whether these reliefs are available and a claim for relief must be made by the owner.
Stamp Duty Land Tax
On 21 March 2012 a new SDLT rate of 15% was introduced on the purchase of homes worth more than £2m by non-natural persons (and the following day a new rate of 7% came into effect for properties of that value purchased by any other person). For any acquisitions made before the date when the Finance Bill 2013 receives Royal Assent the reliefs for properties used for commercial purposes referred to above will not apply for the 15% SDLT rate; they will only apply after that date.
Annual Residential Property Tax
The ARPT will apply where a property owned by a non-natural person was worth at least £2m on 1 April 2012 at the following rates:
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Where a property is purchased part way through a year, or where one of the reliefs applies for part of the year, then the annual charge with be pro-rated.
The amounts of the annual charge will increase with the Consumer Prices Index but the bands will not.
Properties will be re-valued on 1 April 2017 and every five years thereafter (whether their value has risen or fallen in the meantime).
New properties will be valued on their date of acquisition.
The owner will be required to deliver a self-assessment tax return including the market value of the property by 30 April in the relevant year, and the tax must be paid by the same date. Exceptionally, for the first year the filing date is 1 October 2013.
Capital Gains Tax
The Government has also confirmed that from 6 April 2013 non-resident non-natural persons who dispose of property covered by the new regime will be subject to CGT at a rate of 28%. Draft legislation for this change will be published in January 2013.
It is intended that the charge will apply to the same types of non-natural persons as the rest of the new regime and the same reliefs will be available when there is commercial use. In the case of partnerships with corporate members, only the gains of corporate members will be taxed by this new charge.
We understand that tax will only be charged on the amount by which the value of the property has increased since 6 April 2013. Currently these non-resident non-natural persons (e.g. companies) are not normally subject to CGT, although any UK resident shareholders may themselves be taxed on gains realised by the company, and if the company is owned by non-UK trustees then the settlor or beneficiaries of the trust may be taxable on the company's gains.This new CGT charge does not apply to UK resident non-natural persons. Those entities will already be subject to either corporation tax or CGT under the current rules. The Government has said that it may apply the new 28% CGT charge to UK resident companies in place of corporation tax.
In some cases where the new charge applies, the owner's net proceeds may be less than if they had sold the property for less than £2m. There will therefore be a marginal relief so that tax is charged on either the actual gain or the amount of the disposal value that exceeds £2m multiplied by 5/3, whichever is lower.