UK: New Annual Residential Property Tax: Pre-Return Banding Check Service From HM Revenue And Customs

Last Updated: 28 March 2013
Article by Lyndsey L.M. West


The UK's HM Revenue and Customs ("HMRC") has recently published details of the service it will provide, called the "pre-return banding check", to help companies which own residential properties worth over £2m to determine whether or not they fall within the new annual residential property tax ("ARPT") applicable from 1 April 2013 and if they do, which tax band they fall into.1

If a property falls within ARPT then it will also be within the new capital gain tax ("CGT") charge, which affects residential properties worth over £2m and held in a UK or non-UK company. The pre-return banding check is therefore relevant to whether the new CGT charge applies (as well as to the ARPT). The new CGT charge applies to the post-5 April 2013 gain element on disposals on or after 6 April 2013 of affected properties.2 According to HMRC guidance the forms to apply for a pre-return banding check will become available in June 2013. It will therefore become possible to apply for a pre-return banding check from summer 2013.

In the rest of this briefing we indicate how the ARPT and the new CGT charges work3, why the pre-return banding check is relevant and finally, in accordance with HMRC's recently published guidance, how the pre-return banding check is intended to work.

New annual residential property tax ("APRT")

The APRT commences on 1 April 2013 and will be payable on residential property worth over £2m owned by companies, partnerships with at least one partner that is a company and collective investment schemes. Relief is available for residential property held for the purposes of commercial businesses, such as a rental business or property development.

The first ARPT returns must be submitted to HMRC on or before 1 October 2013 and the tax must be paid by 31 October 2013. In subsequent years the returns will normally have to be submitted and the tax paid by the end of April in each year.

The amount of ARPT due depends on the value of the residential property in question as follows

  • £2m to £5m at £15k annually
  • £5m to £10m at £35k annually
  • £10m to 20m £70k annually
  • Above £20m at £140k annually

The first valuation date for purposes of the above table is 1 April 2012. Thereafter properties must be valued for purposes of ARPT on every five year anniversary of 1 April 2012. The next valuation date is therefore 1 April 2017. The date on which a property is purchased is also a relevant valuation date for ARPT purposes.

Once the valuation of a property is fixed as at 1 April 2012 and as at subsequent five year anniversaries (or on purchase of the residential property in question between five year anniversaries) then that is the relevant valuation for purposes of ARPT until the next five year anniversary. So if a property is worth £1.9m on 1 April 2012, then even if its value goes above £2m in 2013 and subsequent years, it remains outside ARPT until the next valuation date on 1 April 2017 (unless it is purchased by a new owner in the meantime, in which case, as explained above, its value on the date of purchase becomes relevant for ARPT purposes in the hands of the new owner, if a company).

New CGT charge

One of the conditions for a property to be within the scope of the new CGT charge is that is must be within the ARPT charge. If it is outside ARPT because worth under £2m on the relevant ARPT valuation date then it will be outside the new CGT charge, at least until the next ARPT valuation date, even if sold for over £2m in the meantime. Thus the value of the property for ARPT will also affect whether the property in question falls within the new CGT charge.

Example: On 1 April 2012 a company owns a residential property worth £1.9m. On 1 April 2016 the property is sold for £5m. Because it was worth under £2m on the first valuation date of 1 April 2012 it remains outside ARPT until the next valuation date on 1 April 2017 or until its earlier purchase for over £2m by a new owner. In this case the property will have been outside ARPT until (and including) its sale on 1 April 2016. Because it will have been outside ARPT it will also be outside the new CGT charge so that the new CGT charge will not apply on the sale on 1 April 2016 for £5m. However, if the new owner is a company and because it would have purchased the property for over £2m it will be potentially within ARPT from the date it acquired the property on 1 April 2016.

Pre-return banding checks

From the above brief explanation it can be seen that the valuation as at the relevant valuation dates of a residential property which is potentially within the ARPT and the new CGT charge is crucial.

In connection with this valuation process, HM Revenue & Customs ("HMRC") have recently published guidance about their "pre-return banding check" service. This will enable a property owner to ask HMRC to check the property details and valuation to see if the owner needs to pay ARPT. This is called having a pre-return banding check.

When a pre-return banding check might be relevant

The HMRC guidance states that the pre-return banding check is available if

  1. a person is not due any relief in respect of the property in question that will reduce the ARPT charge to nil; and
  2. the value that the owner has placed on the property falls within 10% of one of the banding thresholds.

Therefore if a property is valued in one of the bands shown below, the beneficial owner will be able to apply for a pre-return banding check using a form that will be available on the HMRC website from 1 June 2013

  • £1.8m - £2.2m
  • £4.5m - £5.5m
  • £9m - £11m
  • £18m - £22m

By way of the pre-return banding check, it would be possible to reach agreement about which ARPT band the property falls into, or whether it falls outside the tax, on the basis that it is under the £2m threshold.

What happens after the property owner applies for a pre-return banding check?

According to their recently published guidance, HMRC aim to provide a response to the application for a pre-return banding check within 20 working days of receiving it. For property owners who decide that they need a pre-return banding check it will therefore be important to apply at least 20 working days before the date on which they need to send in their return. In practice property owners would need to apply well in advance of this, given possible delays within HMRC.

It is important to note that HMRC will only agree to the banding proposed by the property owner; they will not agree any specific valuation of the property. Moreover, the pre-return banding check can only be used for the purposes of the ARPT and not for any other tax purpose (although, as explained above, it is also indirectly relevant to the new CGT charge).

HMRC state in the guidance that they will either:

  • Agree that the band chosen is appropriate based on the information provided.
  • Ask for further information to help them make a decision about the correct band; or
  • Indicate that they do not agree the band proposed by the prospective taxpayer.

According to the guidance, the inside of the building in question might need to be inspected as part of the check.

Note also that HMRC will normally be able to accept valuations prepared by a professional property valuer but they reserve the right to:

  • Enquire into any subsequent ARPT returns.
  • Challenge valuations, including valuations in those returns, where they consider there is a risk that the return or valuation is wrong.

Furthermore, according to the guidance, HMRC may decide to open an enquiry into a return to enable them to continue considering the appropriate banding for the property in question.

What happens if the property owner does not agree with HMRC's decision?

According to the HMRC guidance where the property owner thinks that their property is worth less than £2m and that a return is not due, HMRC may issue a "determination" based on the banding that they believe to be correct. A "determination" is where HMRC makes a "best estimate" of the ARPT owed, based on their valuation of the property and issues a demand for payment. The person in question can appeal against this determination if the person does not agree with it.


Before applying for a pre-return banding check careful thought will be needed in each case as to whether it is necessary or appropriate to do so. The pre-return banding check is likely to be relevant only in cases where a property is genuinely on the borderline between bands. We generally would recommend that clients obtain professional valuations of their property for purposes of annual residential property tax whether or not a decision is taken to apply for a pre-return banding check


1 The HMRC guidance can be seen at

2 The pre-6 April 2013 element of the gain is subject to tax according to the normal rules ie UK companies pay corporation tax and otherwise the special rules for gains on disposals by non-UK companies apply to the pre-6 2013 April element of gain

3 There is some additional detail on the APRT and the new CGT charge in Charles Russell briefing notes at and

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.

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