The commentaries below are written in general terms. You are strongly recommended to seek specific advice before taking any action based on the information given, both in the commentaries and in the publication.
CGT principal private residence (PPR) relief – final period rule
A property that qualifies as an individual’s private residence for the purpose of PPR relief at some time during ownership is deemed to continue to do so during the final period of ownership. This is the case even if the individual is not living in the property at the time they dispose of it and even if they are claiming PPR relief on another property at the same time.
From 6 April 2014 the final period exemption will be reduced from 36 to 18 months.
Comment
The reduction in the final period was announced in the 2013 Autumn Statement. Since then, more detail on the reduction has been released. Specifically, although the date of exchange remains key in determining whether the 36-month or 18-month final period applies, anti-avoidance rules will be included to prevent taxpayers exchanging contracts before 5 April 2014 but not completing until after 6 April 2015 and still benefiting from the 36 month final period.
Capital gains tax: non-residents
As announced in the 2013 Autumn Statement, a capital gains tax charge will be introduced from April 2015 on ‘future’ capital gains made by non-UK residents disposing of UK residential property.
The consultation document on this proposal has yet to be issued but is expected shortly.
Comment
As noted after the Autumn Statement, we will have to wait until the consultation is published to confirm the exact provisions. It is hoped that the continuing reference to ‘future gains’ made by non-residents will result in an effective rebasing of properties at the date of the changes for non-UK residents caught by these provisions.
Changes to the taxation of high value UK residential property held by certain non-natural persons
Budget 2012 announced a trio of measures to deter the holding of high value UK residential property in companies and certain other ‘non-natural persons’ – so called ‘enveloping’. These were:
- a new penal rate of Stamp Duty Land Tax (SDLT) of 15% on the acquisition of such properties by a relevant non-natural person;
- an annual charge based on the value of the property; and
- an extension to the capital gains charge to bring into charge gains on disposals of properties within the annual charge.
All three measures are subject to wide ranging reliefs covering most situations where the property is held for genuine commercial purposes.
Each of these measures has, to date, only applied where there is a single dwelling with a value in excess of £2 million. Budget 2014 included an announcement that this threshold would be reduced to £500,000.
For the purposes of the 15% rate of SDLT this change comes into effect for acquisitions where the effective date (normally completion but it can be earlier in certain circumstances) is on or after 20th March 2014. However, transitional provisions will ensure that, in most cases, the previous threshold continues to apply where the contract was entered into before 20th March but completed thereafter (this is unlikely to apply where the contract is significantly varied on or after 20th March).
For the purposes of ATED and ATED related gains the reduction in the threshold will be phased in. From 1 April 2015 (6th April for ATED related gains) it will reduced to £1 million, with the ATED charge for properties upto the £2m threshold being £7,000 (this is expected to increase in line with CPI in future years). There will then be a further reduction in the threshold to £500,000 from 1 April 2016 (again, 6th April for ATED related gains), with the ATED charge for properties up to the £1m threshold being £3,500.
As expected the ATED charges for 2014/15 have increased in line with CPI at 2.7% and the rates can be found in the tables in the Appendix.
Comment
When the measures were announced in Budget 2012 it was made clear that they were directed against the enveloping of high value residential property. A £500,000 property in London and the South East cannot, by any stretch, be regarded as particularly high value. The stated aim of these measures is to tackle avoidance and ensure those using corporate wrappers with non-commercial motives pay their ‘fair share’ of tax. The measures are projected to raise £35 million in 2014/15 rising to £90 million in 2018/19. These are relatively minor sums, though press reports have revealed the predictions for revenue from the original ATED proposals were significantly under estimated.
There will be a significant additional compliance burden in terms of ATED returns and valuation requirements, and it should be noted that this compliance burden for ATED is an annual one affecting both those targeted by the measure and those commercial operators who are not targeted.
Stamp duty reserve tax (SDRT) reform
The 0.5% SDRT charges on the value of surrenders of units or shares in unit trusts and open ended investment companies is to be abolished for surrenders made or effected on or after 30 March 2014. However the charge will be retained for non pro-rata in specie redemptions.
Comment
This change was announced in Budget 2013 and is part of a package of measures to make the UK a more attractive domicile for investment funds.
Announcements affecting property investment
The Government has announced it will consult on the SDLT treatment of the seeding of property authorised investment funds (PAIF) and the wider SDLT treatment of co-ownership authorised contractual schemes.
Comment
It is interesting to note the Government is consulting further in this area. In 2012 it abolished the 2% entry charge for enveloping properties within a real estate investment trust (REIT), in part to make managing properties within a REIT’s more competitive compared to the use of PAIF. Changes have also been recently introduced to the REIT regime to facilitate their holding investments in other REITs. It is surprising therefore that a consultation on the SDLT costs of seeding investment vehicles does not include REITs.
Business rates in enterprise zones
Businesses will now have until 31 March 2018 to locate in designated enterprise zones in order to claim business rate discounts. The deadline was previously 31 March 2015.
Comment
This is another welcome proposal encouraging take up of premises in enterprise zones hopefully further supporting the initial investment required to kick start work in these designated areas.
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.