The publication on 11 December of draft Finance Bill 2013 provisions has been hotly anticipated by all those looking for clarification on the proposed new taxation of high value UK residential property. While the position now is significantly clearer, certainly in relation to the new annual tax charge, it is nevertheless disappointing that the Government has had to delay the publication of draft legislation on the proposed extension of the capital gains tax rules in this area until January 2013. It is therefore still difficult for nonnatural persons to be certain about exactly how the proposed changes to the current regime will affect them and postponing decision-making on this basis until the draft legislation is eventually released will leave very little time to take action before April 2013 when the new measures come into force.

However, it would appear that the Government has made some welcome concessions that may, in some instances, remove the need for significant reorganisation of existing structures. These include exempting trustees and genuine property developers and investors. Perhaps most welcome is the news that there will be a form of rebasing relief for all properties affected so that only gains that accrue on or after 6 April 2013 will be chargeable. In addition, a taper relief for those properties which "marginally" exceed the £2 million threshold on sale will also apply.

A brief overview of the Annual Residential Property Tax, together with the proposed capital gains tax changes, is set out below but it is, in view of the limited amount of time before these measures come into force, most important for you to seek advice.

1. Annual Residential Property Tax (ARPT)

  • payable by "non-natural persons" (NNPs): resident and non-resident companies, collective investment schemes and partnerships which have a company as a partner
  • trustees are exempt, as are NNPs which rent out property to third parties on a commercial basis or are "genuine businesses carrying out genuine commercial activity" (provided connected persons do not occupy the property)
  • the requirement for property developers to have a two year trading history has been abandoned
  • extended relief for: farmhouses and properties owned by charities, owned to provide employee accommodation and used by the public on a commercial basis (relief needs to be claimed annually)
  • The rates of the ARPT remain unchanged:

Taxable Value of Property




£20m +

Annual Charge





  • the chargeable period runs from 1 April to 30 March (note this is linked to the corporation tax year) and ARPT is apportioned if not applicable throughout the Year
  • residential properties will need to be valued every five years, with the first valuation taking place at 1 April 2012
  • the punitive 15% rate of SDLT on purchases of residential property worth more than £2m will only apply to NNPs who would also be subject to the ARPT (conditions apply and this is effective from FA 2013 receiving Royal Assent next summer; before that current charging rules apply)

2. Capital Gains Tax (CGT)

  • draft legislation to be published in January 2013
  • 28% rate of tax
  • non-UK resident NNPs will come within the charge
  • there is a consultation out as to whether UK resident NNPs should also be brought within the charge (currently profits are taxed to corporation tax at a lower rate)
  • no principal private residence relief for NNPs
  • as with the ARPT: trustees, together with genuine commercial property businesses (such as development and investment) are exempt
  • rebasing relief introduced so that only gains accruing on or after 6 April 2013 will fall within the charge
  • taper relief applies where the value of property marginally exceeds the £2 million threshold
  • these extended CGT provisions will take precedence over the current anti-avoidance provisions for trusts and companies

3. Options

  • Do nothing
    • for those that are UK resident, CGT may arise on a restructuring;
    • for properties which are mortgaged, SDLT may arise on restructuring;
    • for those that are elderly or in poor health then the benefit of the inheritance tax (IHT) shelter of the structure might outweigh the potential CGT or ARPT exposure and the ARPT might be more economic when compared with life insurance premiums and mortgage interest particularly since life insurance and debt are unable to rise with inflation and/or property prices and can be difficult for non-UK residents to obtain (an NNP can provide complete IHT protection); and
    • wider reasons such as estate planning, succession/ asset protection and confidentiality might outweigh the tax disadvantages of retaining the trust/ company structure.
  • Unwind the company structure into direct Ownership
    • the holding company could be liquidated and property returned to the shareholder as capital;
    • care needs to be taken if the property is mortgaged or the shareholder is UK resident;
    • thereafter life insurance or debt could be considered to deal with IHT exposure, together with an appropriately drafted English Will; and
    • co-ownership between spouses and other family members could be considered (albeit vulnerable to family fall out and third party claims on divorce and bankruptcy, etc).
  • Convert the company structure to a nominee Arrangement
    • similar to the bullet point above but the property would be held by a company as nominee;
    • transparent for all taxes so IHT exposure would need to be dealt with as above; and
    • retains confidentiality (although on request details would most likely have to be disclosed to HMRC).
    • Hold the property at offshore trustee level, perhaps using double trust arrangement
    • this provides asset protection and succession planning advantages;
    • no ARPT;
    • no CGT as trustees are exempt;
    • no punitive rate of SDLT on the purchase of new property; however,
    • exposure to IHT periodic and decennial charges at a maximum of 6% and possible tax on settlor's death unless debt in place (hence suggestion of double trust structure).
  • Hold the property in a foreign LLP
    • tax transparent for CGT and therefore not within NNP CGT regime;
    • no ARPT;
    • foreign LLP is likely to be opaque for IHT and therefore provides IHT protection (note a general foreign LP is likely to be treated as transparent and as such provides no IHT protection); but,
    • more complex and set up and management costs to consider.

4. How we can help

  • explain the advantages and disadvantages of each option from both a tax and estate planning perspective
  • liaise with lending banks as regards redemption of mortgages, refinancing or obtaining necessary consents due to restructuring
  • liaise with freeholders/landlords if dealing with a leasehold interest
  • obtain title deeds to the properties
  • draft the necessary documentation to effect the transfer of the property out of the existing structure (be it nominee documentation, Land Registry forms, transfers of shares, declarations of trust, security documents or SDLT returns)
  • arrange company liquidation and co-ordinate with the Liquidator
  • file the necessary forms with and make applications to the Land Registry

5. Conclusion

The Government's introduction of extended reliefs and exemptions for trustees and genuine property developers and investors may mean that a large number of NNPs now fall outside the scope of the new charges.

Nevertheless, it will be essential for all structures to be reviewed in good time, so that any subsequent action can be taken prior to tax year end on 5 April 2013. It is also worth noting that any complicated restructuring might trigger the application of the new General Anti- Abuse Rule, which may or may not be retrospective. George Osborne also mentioned in the Autumn Statement that he would be focusing on "the abusive use of partnerships" which may include complicated restructuring involving foreign LLPs - watch this space.

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.