HMT Consultation Paper – New Tax Rules for Residential Properties over £2m

HM Treasury has recently published its Consultation Paper on the new property taxes first outlined in the Budget earlier this year.

 

See below a brief overview of the main suggestions.  The consultation period runs until 23 August.

• Since the Budget in March, Stamp Duty Land Tax of 15% already applies to new purchases above £2m in value by “certain non-natural persons”;
• It is also proposed that an annual tax charge and CGT will apply from April 2013 on property owned by “non-natural persons” and “non-resident companies”;
• The main areas for consultation seem to be around the scope of the 15% tax rate and how bona fide developers might be exempt.

 

The annual tax charge proposals are roughly as follows:

• The annual tax charge will range from £15,000 (on properties worth £2-5m) to £140,000 (on properties > £20m), increasing annually in line with Consumer Price Inflation (“CPI”);
• Property values will be set at April 2012 or date of purchase (if later).  They will apply for 5 years (2013-18) and then be updated for a further 5 years;
• The annual charge will apply to companies (with some exceptions) but not trusts.

 

The Capital Gains Tax (“CGT”) proposals are roughly as follows:

• CGT will apply to the sale of property by non-resident companies;
• They are consulting on whether CGT should also apply to sales by offshore trusts;
• CGT will also apply where shares in the company itself are sold;
• CGT will apply to historic as well as future gains;
• The rate of CGT hasn’t been set and is open to consultation.

 

Interestingly, though, the Exchequer expects the impact of the CGT rules on overall tax receipts to be ‘negligible’ (whereas on the SDLT and annual charge, there is expected to be an increase in tax receipts).

 

In our view, these changes are very significant.  It is definitely worth reviewing existing arrangements as soon as possible, although subject to the caveat that this is still in the consultation phase so the rules are likely to change.  Specific actions should therefore be left until the rules have been clarified (hopefully later in 2012 or early 2013).  While the new rules are specifically designed to encourage the unwinding of these ‘envelope’ structures, consideration does also need to be taken of other (non-tax) reasons for holding a property in this manner (particularly the issue of privacy).

 

Image copyright: Peter Thwaite and licensed for reuse under this Creative Commons Licence.

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