New annual charge for high-value houses owned through companies

The Government is introducing new measures designed to deal with the perceived avoidance of stamp duty land tax by owners of high-value homes.

The Treasury has set out proposals for an annual charge for high-value residential property – residential dwellings with a value of more than £2m – owned by 'non-natural persons'. Capital gains tax (CGT) will also be extended to gains made on such property by certain non-resident, non-natural persons. The Government has indicated that the new rules – expected to take effect in April 2013 – will target perceived avoidance of stamp duty land tax (SDLT) by owners of expensive residential property and are designed to discourage the use of corporate envelopes by non-UK residents.

The annual charge and CGT charge for non-resident, nonnatural persons, will not apply to non-residential or commercial property, any type of property valued at less than £2m, or any property held directly by a non-resident individual.

Annual charge

The annual charge will be self-assessed and the tax will be payable by 15 April each year (subject to transitional rules). Where the property was owned at 1 April 2012 the value at that date will be used to calculate the charge payable in April 2013. The valuation will be based on CGT market-value rules. Properties will have to be revalued every five years, so for a property held at 1 April 2012 the next valuation date will be April 2017.

The annual charge will apply to UK and non-UK resident owners of high-value residential property who are corporates, partnerships with a corporate member or collective investment schemes. Exclusions from the charge are currently limited to certain property developers, trustees and charities.

The charge will operate in bands and will be indexed in April each year (commencing 1 April 2014) – in line with the consumer prices index (CPI) in September of the previous year.

CGT charge

The CGT proposals are expected to use the same high-value residential property definition as for the annual charge and will apply to the whole gain accruing on a disposal (not just the gain arising from April 2013). The definition of non-natural persons for this purpose is likely to be wider than for the annual charge and will include:

  • companies and other corporate bodies
  • trustees (with some exceptions) and collective investment Vehicles
  • personal representatives
  • clubs and associations
  • entities existing in other jurisdictions permitting property to be held indirectly.

This list does not include non-resident individuals.

The charge will apply to direct and indirect property disposals, including shares in a property-owning company where more than 50% of the value of assets is derived from UK residential property (understood to be high-value residential property as defined). There will be restrictions on the use of losses.

Action required?

Where a high-value property is owned by a non-natural person, early action will be required to review property values, and to consider whether the existing structure is still appropriate.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.