To quote HM Treasury, the Government perceives that tax is being avoided “whereby an individual establishes a company to envelope a property owned for the personal use of that individual or their family” (consultative document entitled 'Ensuring the fair taxation of residential property transactions (PDF 388 KB)' published in May 2012).
Broadly the overall proposals in the Finance Bill 2013 Draft Clauses published on 11 December 2012 are consistent with parts of the proposals announced at the time of the 2012 Budget and set out in the May 2012 consultation document, namely:
- A 15 percent stamp duty land tax (‘SDLT’) charge on the acquisition by “non-natural persons” of UK residential properties costing more than £2m (became effective immediately on Budget Day in March 2012);
- An Annual Residential Property Tax (“APRT”) on “non-natural persons” who own UK residential property worth more than £2m; and
- A capital gains tax (‘CGT’) charge on the disposal of UK residential properties worth more than £2m by a non-resident, “non-natural persons”.
It is proposed that the annual and CGT charges come into effect from 6 April 2013.
However, it seems that HM Treasury and HMRC have listened to interested parties and the Finance Bill 2013 draft clauses issued for further consultation exclude some parts of the proposals set out in the May 2012 consultation document. Steps have been taken to:
- Restrict the scope of the charges by narrowing the definition of “non-natural persons” so that only properties owned by a company, corporate partnership or a collective investment scheme appear to be caught;
- Remove some genuine business activities from the scope of the changes, seeking to limit the new charges to properties occupied by a beneficial owner or a person connected to that beneficial owner. This relaxation does not apply straight away so that for instance some property development and rental businesses may be caught by the 15% SDLT charge on acquisition until a date to be decided, but later in 2013; and
- Introduce a process to allow ‘de-enveloping’ without triggering a retrospective CGT charge.
Please click here for a summary of the changes (see page 14) Finance Bill 2013 Draft Clauses – KPMG Report
What should you do following the announcements on 11 December 2012?
Although how the new legislation from 6 April 2013 will work remains uncertain, understanding the aims and requirements of the property owner are key to providing the most suitable advice.
If you already own residential property worth more than £2m or you are looking to make such an acquisition, you could be affected by these changes. If you are, please call your usual KPMG contact or any of the individuals listed in the attached publications.