We are definitely going to have a new tax known as the Annual Residential Property Tax which will come into force in April 2013. It will apply to UK residential property worth more than £2 million which is held by a company, partnership or collective investment scheme. Whether these entities are resident in the UK or otherwise will not matter. Interestingly, it will not apply to trusts. The charge will start at £15,000 for properties worth more than £2 million on 1 April 2012, £35,000 for properties worth more than £5 million rising to £140,000 on properties worth more than £20 million. It is intended to impose the charge on properties which are kept for occupation and not those which are let or otherwise used for a business purpose. For those years when the property is let commercially to unconnected tenants, the annual charge should not apply.

In addition to this annual charge, capital gains tax is going to be extended to gains made on the disposal of such properties by non resident companies – and the other entities which are within the scope of the annual charge. Trusts have been specifically excluded from this as well. (That is not quite as helpful as it seems because non resident trusts can still have their gains attributed to UK resident beneficiaries by reference to benefits they receive – but we need not worry about that here).

The original proposal was that the whole of the gain made on the disposal of the property would be subject to capital gains tax – not just the gain accruing after the introduction of the new rules. However, this will not now be the case. It is now proposed that capital gains tax will only apply to the gain accruing after April 2013. The rate of capital gains tax will be 28% - which is a bit odd because UK resident companies would pay corporation tax on such gains at a much lower rate. This looks rather discriminatory to me.

So everybody with an offshore company holding a valuable UK company will want to get the property out of the company to avoid both these charges. Rearranging matters so that the property is held by a trust would do the trick – but it would expose the property to inheritance tax on the trustees on each tenth anniversary. Actually, it might be worse – there may be a reservation of benefit, depending on the identity of the settlor, with the result that the property may be treated as forming part of the estate of the settlor.

So the whole of these new property taxes boils down to an entirely different problem which is inheritance tax. Some people (particularly if they are young and married) may not be bothered about the inheritance tax exposure not least because in the event of an unexpected death, the spouse exemption would ensure that there is no inheritance tax charge. Others will be less relaxed about the inheritance tax and that will obviously be their (and our) priority.

It may be possible to improve the situation by the use of a partnership (limited or otherwise) to create excluded property but this is uncertain at the moment. HMRC have made it clear that they are looking carefully at partnerships in this context, no doubt to make sure that they cannot be used to advantage. There is likely to be lots more thinking, and lots of activity, between now and April.