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Tony Wickenden: Tax planning for high-value property

The proposed mansion tax will not be as punitive as many have feared

Tony Wickenden Tax Planning Technical Area

My last consideration in relation to the tax proposals emerging from the Autumn Statement and consultation documents is that of high value residential property.

Especially for very high net worth clients of advisers, the fear of some form of ‘mansion tax’ has been very real for a while now.

High value property represents a very easy target for HMRC to raise additional revenue from and so the proposed introduction of:

– a 15 per cent stamp duty land tax rate


– an Annual Residential Property Tax

was probably at the lower end of the ‘fear’ scale for those who could be affected.

The Government’s stated aim in relation to property taxation is to ensure that everyone pays their fair share of tax on residential property. While the majority of people do pay their property taxes (and without them the Government would be less able to afford the public services on which the country depends) there are some who avoid paying their share.

To address this perceived tax avoidance, and to ensure the owners of high value residential property pay their fair share of tax, the Chancellor announced a threefold approach:

  • First, the introduction (from 21 March 2012) of a 15 per cent rate of SDLT on acquisitions of residential dwellings costing more than £2m by certain non-natural persons (companies, partnerships including a company and collective investment vehicles);

  • Second, from 1 April 2013, an annual charge on residential property valued at over £2m owned by certain non-natural persons; and

  • Third, from 6 April 2013, the extension of capital gains tax to gains on the disposal of residential property valued at over £2m by non-resident companies and others (but not individuals).

In response to the consultation that took place the Government has stated that a series of reliefs will be included within the legislation for the ARPT to exclude genuine businesses carrying out genuine commercial activity. These will include reliefs for:

  • Property development businesses: dwellings held for the purpose of the property development trade of the company and not occupied at any time by a connected person;

  • Property rental businesses: dwellings held for the purpose of letting to third parties for rent on a commercial basis and not occupied at any time by a connected person;

  • Property trading businesses: dwellings held for the purpose of a trade of buying and selling property and not occupied at any time by a connected person;

  • Properties which are run as a businesses: properties open to the public with access to the interior for at least 28 days per year on a commercial basis, as a venue, location or to provide accommodation or other services;

  • Dwellings held to provide employee accommodation: property held for the use of employees (with less than 5 per cent interest in the company) of the non-natural person, for the company’s commercial purposes;

  • Charities: dwellings owned by charities and held for charitable purposes, unless occupied by a substantial donor to the charity;

  • Farmhouses: for situations where a working farmer occupies a farmhouse connected to the farm land for the purposes of farming the land; and

  • Certain other diplomatic, publicly owned properties, or property conditionally exempt from inheritance tax.

The 15 per cent SDLT rate legislation will be amended to include a series of reliefs to mirror those in the ARPT legislation. Like the ARPT legislation, this will come into effect from the date of Royal Assent to Finance Bill 2013 which is expected to be some time in July.

These reliefs will also apply for the extended CGT regime, which will apply to disposals of high value UK residential property by non-natural persons (NNPs) from April 2013. The rate of the CGT charge on these disposals will be 28%, with a tapering relief for gains where the property is worth just over £2 million.

As non-resident NNPs are not currently subject to the CGT regime, this charge will apply only to that part of the gain that is accrued on or after 6 April 2013. These changes will come into effect from the date of Royal Assent to Finance Bill 2013.

For consistency, the Government is considering extending the CGT regime to also apply to disposals of high value residential property by UK NNPs (which are currently subject to corporation tax, including on gains they realise on residential property). This would mean that all NNPs – both UK and non-resident – within the scope of ARPT would be subject to CGT.

Early indications suggest that the long-term trend in high value property transactions is unchanged and any future impacts are likely to be offset by the reliefs from ARPT and the 15 per cent SDLT rate and the continued growth of property prices in prime residential London locations.

Tony Wickenden is joint managing director at Technical Connection

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