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Annual charge on high value properties: consultation

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The government is consulting on a new annual charge on residential properties valued over £2m owned by certain ‘non-natural’ persons, and a proposed extension of capital gains tax to the disposal by non-resident, non-natural persons of residential property for more than £2m.

Budget 2012 announced measures to tackle the ‘enveloping’ of high value properties to avoid the payment of a ‘fair share’ of tax. Non-natural persons are broadly ‘companies, partnerships including companies, and collective investment schemes’.

‘A major source of abuse – and one that rouses the anger of many of our citizens – is the way some people avoid the stamp duty that the rest of the population pays, including by using companies to buy expensive residential property. I have given plenty of public warnings that this abuse should stop,’ George Osborne said in his Budget speech.


The CIOT said there were ‘good and urgent reasons’ to amend the proposed new FA 2003 Sch 4A introducing the 15% rate


Ensuring the fair taxation of residential property transactions invites comments by 23 August. HM Treasury will host stakeholder forums on the policy issues surrounding the two proposals later this month, the CIOT reported.

‘The aim of the CGT 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,’ the Treasury said.

A separate measure included in Finance Bill 2012 provides for a 15% rate of stamp duty land tax on acquisitions of residential dwellings costing more than £2m, by ‘non-natural’ persons, with effect from 21 March 2012.

In a submission to HMRC on 5 April the CIOT said there were ‘good and urgent reasons’ to amend the proposed new FA 2003 Sch 4A, but it had been suggested in meetings that ‘no amendments to the draft legislation will be entertained until the completion of the consultation on the new annual charge’. Such an approach would be ‘completely unacceptable’, the CIOT said.

Last week’s consultation document acknowledged concerns that the coverage of the 15% rate, and the possible coverage of the new annual charge, risked:

  • ‘inhibiting’ the high end of the property market by including ‘individuals who envelope property for reasons other than SDLT avoidance, property investment companies … and property development companies who fail to meet the terms of the exemption in the legislation’; and
  • having ‘adverse knock-on effects lower down in the property market’.

Property valuations for the annual charge would be self-assessed and submitted to HMRC as part of an ‘annual charge tax return’. The annual charge would be £15,000 for a property valued at between £2m and £5m, and £140,000 for a property worth over £20m.

The government intends to publish draft legislation for Finance Bill 2013 in the autumn.

‘The consultation shows that the government is serious about tax avoidance on high-value homes,’ said Paul Emery, Real Estate Tax Director at PwC. ‘Property developers and investors are afraid that the government's measures, aimed at property owners who have not paid tax, will apply to commercial investors.’ The government had listened to the property industry's fears, Emery said, and was looking to ensure that the new measures were ‘focused’.

Tony Cohen, Senior Private Client Partner at Deloitte, said: ‘The announcement of these changes in the Budget was significant for the London property market and did seem to have an immediate impact. Not surprisingly, the consultation document indicates the Treasury has already received a fair number of comments on the plans and it suggests the government might be open to considering other proposals to cut out SDLT avoidance.

‘The measures are tough on the high-end residential property market and could have a dramatic impact on the dynamics of the London property market. The concern is they will damage London’s competitiveness so we look forward to seeing how the consultation develops.’

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