Draft Finance Bill 2013: Implications for High Value UK Residential Property

The publication last month of the draft clauses to be included in the Finance Bill 2013 due to come into force this April confirmed the measures proposed for the taxation of high value residential property in the 2012 Budget.

The new measures include:-

  • Proposed relief from the 15% Stamp Duty Land Tax (SDLT) rate for genuine commercial landlords, property developers and certain other properties, to come into effect from July 2013.
  • An Annual Residential Property Tax (ARPT) for certain non-natural persons (namely companies, partnerships with company members and collective investment schemes) that own high-value residential property.
  • A new 28% Capital Gains Tax charge for non-resident, non-natural persons who own property valued at over £2 million.
  • Changes to the SDLT rules on transfers of rights (i.e. sub-sales) and certain lease arrangements.

The New Annual Residential Property Tax (“ARPT”)

The new ARPT will apply to the ownership of interests in residential property by certain “non-natural” persons if the interest is valued at over £2 million as at 1 April 2013.  A number of reliefs from the ARPT are to be available if the dwelling is used for a commercial property development, trading or property rental business.

Trusts also do not fall within the scope of the annual charge, although a company wholly owned by a trust would.  Therefore whilst the scope of the new levy is far-reaching, it is not intended to cause a detriment to genuine business or charitable activities.

The exclusions from the ARPT will include the following:-

  • Properties run as a business – for example those that are regularly open to the public or used to provide accommodation or other services to the general public on a commercial basis.
  • Properties conditionally exempt from Inheritance Tax.
  • Farmhouses occupied by working farmers.
  • Properties owned by trading companies for the use of employees in the trade.
  • Properties owned by a charity and held for a charitable purpose.
  • Properties owned by public or government bodies or for social housing.

Urgent action is therefore needed by existing owners of UK residential property affected by these changes to ensure that the relevant tax advice is taken and, if necessary, there is sufficient time to restructure before this coming April.  Any new purchase of high value residential property must also now be structured with care.

This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 020 7404 0606 and ask for your usual Goodman Derrick contact.