Whilst a consultation document was expected on the extension of capital gains tax to non-UK resident owners of UK residential property (see below), the Chancellor also stood up today and announced an extension of the tax regime relating to 'high value residential property' owned by companies, partnerships with corporate members and collective investment schemes (non-natural persons) to properties worth more than £500,000.

The policy objective behind these taxes, as noted by the Chancellor today is to tackle tax avoidance but particularly to deter SDLT avoidance – eg by people selling the shares of a company for instance rather than the property itself.  In fact, the sale of shares of a company that owns UK property still does not attract SDLT.  However, the extension of these taxes to properties worth £500,000 or more will likely deter people from owning property this way in future. For existing properties owned this way it is difficult to see how they can be 'de-enveloped' without a UK tax charge and therefore owners may need to be prepared 

The annual tax element was originally estimated by HMRC to raise about £20m.  Estimated numbers for the tax paid for 2012/13 is actually closer to the £100m mark and so in that respect it has been seen as a success.

The suite of taxes were originally introduced from April 2013 to apply to residential property worth more than £2m owned by non-natural persons (as opposed to personal ownership) and cover:

  • A rate of 15% SDLT on acquisition of properties by non-natural persons (as opposed to the usual 7% rate for homes of £2m or more);
  • An annual tax, known as 'ATED' (annual tax on enveloped dwellings), ranging from £15,000 to £140,000 depending on the value of the property, which will index annually in line with CPI;
  • For properties in this regime then capital gains tax also applies on sale on any growth in value from April 2013, even for non-UK resident entities.

There are a number of exemptions to these taxes, including for buy-to-let investors and property developers.

Detail included in the budget notes today sets out that the extension will apply in a staggered way, starting from tomorrow, as follows:

  • The 15% rate of SDLT will take effect for completions on or after 20 March 2014 (so this compares to rates of 4% for properties worth more than £500,000 and 5% for properties worth more than £1m which apply on personal acquisition)
  • ATED will apply to residential property worth more than £1m but less than £2m from 1 April 2015 and the annual charge will be £7,000 for the first year.
  • ATED will apply to residential property worth more than £500,000 but less than £1m from 1 April 2016 and the annual charge will be £3,500 for the first year.
  • Capital gains tax will also apply to all properties within the ATED regime from 6 April 2015 and 6 April 2016 as applicable on growth in value from those dates.

Across all taxes the extension of this regime is expected to raise £35m in 2014/15 and £70m in 2015/16.  If the estimates are as inaccurate as for the £2m properties then these could increase five-fold. 

It will be interesting to see how the proposals in the Consultation Document expected shortly to extend Capital Gains Tax to all non-UK residents owning UK residential property will tie into the extended ATED proposals announced today, and in particular whether there will also be a £500,000 threshold for properties not held in an envelope.  

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