The much anticipated draft legislation for the new rules on the taxation of UK high value residential property was published (in two parts) in December 2012 and January 2013. As discussed in some detail in our Autumn edition, these rules impose the following new charges on "non-natural persons" which acquire or hold residential property worth more than £2m:
- a 15% rate of stamp duty land tax (SDLT) on acquisitions of such property;
- an annual residential property tax (ARPT) ranging between £15,000 and £140,000 per year depending on the value of the property; and
- a new capital gains tax (CGT) charge on gains arising on the disposal of the property by non-natural persons.
The publication of the legislation followed a period of sustained lobbying by professional advisors and those potentially affected by the new charges. The lobbying led to some significant concessions by the government, namely:
- a number of reliefs from the scope of the new charges, including reliefs for property rental businesses, property trading businesses, houses open to the public and certain farmhouses (although for SDLT, the new reliefs will not come into force until Summer 2013);
- the two year trading history required to be able to benefit from the existing relief for property development businesses has been removed;
- trusts are no longer to be treated as "non-natural persons" for the purposes of the new CGT charge;
- the CGT charge will only be levied on gains accruing on or after 6 April 2013 and a tapering relief will apply to reduce the effective CGT rate on sales where the consideration is just over £2m.
Less welcome was the announcement that UK resident companies which hold high value residential property will also be subject to the new CGT charge (rather than corporation tax). There is also no general relief for "de-enveloping", despite that being the stated policy of the new rules.
Areas of uncertainty remain, particularly on the interaction of these new rules with existing legislation, and technical glitches await rectification. These rules will, however, be with us in the very near future (except the SDLT rules, which are already in force).
Anyone affected by these rules should review their current ownership structure and take advice on whether that structure needs to be changed. In certain circumstances, it may be appropriate to take the property out of the corporate structure, but other tax considerations (notably, inheritance tax) will need to be considered. There is, however, no "one size fits all" advice. To avoid the charges altogether, structural changes may need to be implemented before 1 April 2013.
This first appeared in our International Newsletter in March 2013.