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.