UK: High Value Residential Development: An Update

Last Updated: 8 October 2012
Article by Tom Wilde

As discussed in our earlier article, the Government launched an attack in Budget 2012 on high-value residential property and perceived tax avoidance

Please see:

Further details have since been published.

Whilst the new SDLT rates - 7% (for residential properties worth over £2m) and 15% (for residential properties over £2m acquired by companies, certain partnerships and collective investment schemes) - came into force immediately, other measures such as the new 'annual charge' and the extension of capital gains tax (CGT) to certain non-resident, non-natural persons will be enacted in Finance Bill 2013, with draft legislation published this Autumn.

It is these later measures on which the Government has published a consultation document, entitled 'Ensuring the fair taxation of residential property transactions'.

The title demonstrates yet again that the Government is moving away from whether something is legal or illegal being the test for whether tax is due, to a determination based on 'morality' or 'fairness'.

The aim of these new measures, like the new 15% SDLT rate, is to deter 'enveloping', i.e. the purchase of high value property by a company (usually a special purpose vehicle) and then transferring the ownership of the property in the future by selling the shares in the SPV rather than the property itself, with the result that stamp duty is paid at 0.5% rather than SDLT at, now, 7%.

Annual charge

The annual charge is payable by non-natural persons, i.e. companies and other bodies corporate, collective investment vehicles and partnerships with one or more such entities as partners.

One of the major criticisms at the time of Budget 2012 was that there are many other reasons, apart from tax avoidance, why someone may want to buy property through a company, e.g. maintaining anonymity, inheritance tax planning, protecting ownership, or to comply with laws in overseas jurisdictions. Therefore the Government's stated aim is to target the annual charge at situations where tax avoidance is a significant factor whilst minimising the impact for bona fide businesses.

The current exclusion for bona fide property development businesses only applies where the property was purchased with the intention of re-development and re-sale by a business which has been operating for a minimum of two years. Concerns have been raised about the narrowness of this exclusion and so the Government is requesting views as to how bona fide businesses can be unaffected whilst targeting tax avoidance. Whether this can be done satisfactorily remains doubtful.

The charge applies to residential property as well as the residential elements of a mixed-used property (in the same way that the new 15% SDLT rate does).

If the property is only owned by a relevant non-natural person for part of a year, then the charge is applied pro-rata.

The value of the property relevant for determining whether the charge applies and the amount of the charge is:

  • the market value of the property interest on 1 April 2012 (if the property was owned at that date)
  • the market value on acquisition, if later; or
  • the market value on any later creation or cessation of a relevant subordinate property interest

Properties will be revalued every five years and, as the charge is self-assessed, HMRC will expect to see a valuation obtained by a taxpayer from a suitably qualified valuer with penalties imposed for getting it wrong.

However to mitigate this it is currently suggested that HMRC and the Valuation Office Agency will offer a pre-return valuation checking service.

The rate of the annual charge is currently proposed as follows:

Property Value Annual Charge 2012-13

£2,000,001 - £5,000,000

£5,000,001 - £10,000,000

£10,000,001 - £20,000,000


Annual Charge 2012-13





Given the 'cliff-edge' nature of the charge, taxpayers can expect HMRC to look closely at any valuations which fall near the band margins.

The annual charge will be linked to the CPI and uprated in April each year based upon the previous September's CPI. Whether the rates of charge are high enough to persuade people to remove property from companies and other envelopes remains to be seen.

Extension of CGT

The aim of the extension is "to support the annual charge by creating a further deterrent to enveloping and to create more equal tax treatment between UK residents and non-residents."

This will again apply to residential property worth over £2m held by non-resident, non-natural persons. However the definition of non-natural persons for CGT purposes appears to be wider than that for the annual charge as it encompasses trustees and personal representatives. It remains to be seen how this will be resolved.

CGT will not just apply to gains made on the disposal of the property itself, but also to gains on the disposal of assets that directly or indirectly represent relevant UK residential property, e.g. shares, interests or securities in a property-owning company where more than 50% of the value of the asset is derived from UK residential property.

One key point to note is that the CGT extension will apply to the total gain accrued during the period of ownership, not just the portion of the gain accrued from the date that the new legislation comes into force. This means that existing trust and company structures will either need to be wound up or restructured in order to establish an up to date base cost.

There are a number of possibilities which can provide a solution and it is not entirely clear how HMRC will enforce the charge, although hopefully this will be made clear in the legislation.


As these changes are still the subject of consultation they may change before implementation. However they give a strong indication of the Government's thinking.

Anyone who is likely to be adversely affected by these changes is encouraged to respond to the consultation before it closes on 23 August 2012.

Should the proposals be enacted in their current form, enveloping high value residential property will become much more expensive in the future.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Smith & Williamson
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Smith & Williamson
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions