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Out-Law News 2 min. read

Government consults on annual charge for company-owned high value properties


The Government is seeking comment on how to limit the impact of a proposed annual charge on company-owned properties valued at over £2 million on "bona fide" arrangements.

It is currently consulting on measures aimed at ensuring people who purchase high value residential properties in the name of a company or partnership pay their "fair share" of tax. The proposals were announced as part of the 2012 Budget.

The consultation (44-page / 387KB PDF) considers the introduction of a new annual charge on residential properties valued over £2m owned by certain "non natural" persons including companies, partnerships including companies and collective investment schemes. It also sets out plans to extend capital gains tax (CGT) to the disposal of UK residential property by non-resident, non-natural persons where the property is disposed of for more than £2m.

The CGT extension would, the Government said, create a more equal tax treatment between UK residents and non-residents as well as discouraging the use of '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. The changes will, if approved, by included in the Finance Bill 2013 and come into effect from April next year.

The Budget also introduced an immediate increase on SDLT charged on acquisitions of residential properties costing more than £2m, to 15%.

"It is helpful to see that the Government specifically recognises there are legitimate non-tax reasons why these 'envelopes' are used," said tax law expert Janet Hoskin of Pinsent Masons, the law firm behind Out-Law.com. "The consultation acknowledges there are concerns for certain groups who could be caught, such as some property development companies and collective investment schemes, and they invite comments on how to limit the impact on bona fide businesses."

The 15% SDLT rate on the purchase of residential property over £2m by companies, partnerships or collective investment vehicles came into force on 21 March. Charities and companies owning land solely in the role of a trustee, other than of a bare trust, are excluded from the charge. 'Bona fide' property development businesses are also excluded providing the property is acquired as part of that business with the intention of re-development and re-sale, and the business has been operating for a minimum of two years. The consultation proposes extending the same exemptions to the annual charge.

In the consultation paper the Government acknowledged that property development companies had argued that he two year trading requirement could act as a "significant barrier" to new entrants to the market. Property investment companies have suggested that the £2m starting threshold would catch out a disproportionate number of investment vehicles exclusively investing in London who needed to envelope their properties out of "business necessity".

"The Government would welcome stakeholder views as to how, and to what extent, the concerns of bona fide residential property development and investment businesses might be addressed without undermining the core policy intent of addressing tax avoidance," it said in the consultation paper. "The Government would also welcome stakeholder views on how any exclusion of collective investment vehicles could be crafted to distinguish between widely-held funds and quite narrowly held ones that might potentially be used for avoidance."

David Gauke, Exchequer Secretary to the Treasury, said that the Government was "determined" to take action against people who attempted to avoid their tax liabilities.

"Whilst most people pay their taxes, there are some who try to avoid paying their fair share," he said. "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."

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