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UK Consults On New Property Tax

Monday, June 4, 2012

The UK government has launched a consultation on two Budget 2012 measures designed to tackle avoidance and ensure that individuals and companies pay the necessary taxes on high value residential property.

The consultation explores the proposed details of a new annual charge on residential properties valued over GBP2m (USD3m) owned by certain ‘non-natural’ persons (broadly companies, partnerships including companies, and collective investment schemes). It also sets out details of the proposed extension of the capital gains tax (CGT) regime to the disposal of UK residential property by non-resident, non-natural persons. It is envisaged that the CGT extension will apply to residential properties disposed of for more than GBP2m in order to be consistent with the annual charge.

Both measures are part of a package to ensure the "fair" taxation of residential property and to clamp down on avoidance, including through ‘enveloping’, where a corporate package is used to wrap up a residential property as a way of avoiding a Stamp Duty Land Tax (SDLT) charge. It is the government's belief that, as well as being a deterrent to enveloping, the CGT extension will create a more equal tax treatment between UK residents and non-residents.

David Gauke, Exchequer Secretary to the Treasury, said: “The government is determined to take action against those who attempt to avoid paying their fair share of tax on residential property. While most people pay their taxes, there are some who try to avoid paying their fair share. We are determined to clamp down on tax avoidance of all kinds and by introducing these two changes, we are taking action to ensure that everyone pays the tax they owe when buying and selling high-value residential property.”

The consultation will be open for 12 weeks and will close on August 23, 2012. The government will publish a response to the consultation in the autumn. Draft legislation for the annual charge and extension of CGT will also be published in the autumn, and then introduced in Finance Bill 2013.

The Budget also included a 15% rate of SDLT on acquisitions of residential dwellings costing more than GBP2m by certain ‘non-natural’ persons. This measure came into effect at Budget 2012 and will be legislated in Finance Bill 2012.

The annual charge on high value property owned by non-natural persons is scheduled to come into effect on April 1, 2013, and the extension of CGT to gains on the disposal of residential property by non-resident companies will be be effective from April 6, 2013.

Other Budget announcements in this area included a range of other proposals designed to tackle SDLT avoidance, including: an extension of the General Anti-Abuse Rule (GAAR) to SDLT; new legislation to close down an avoidance route/scheme using the sub-sales rules; and a wider consultation on the SDLT sub-sales rules.

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