The Government has today published its eagerly awaited response to the consultation paper on the new annual charge and capital gains tax (CGT) charge on UK residential property. Draft legislation on the annual charge is also available, although the CGT legislation has been delayed until January 2013.
The response confirms that:
- from 6 April 2013, a new 28% CGT charge will apply on disposals of properties by non-UK resident companies, partnerships (with a non-UK resident corporate member) or collective investment schemes;
- the CGT charge will only apply to gains accruing on properties on or after 6 April 2013. This means that properties are effectively rebased to their 5 April 2013 market value for the purposes of this tax charge;
- the new CGT charge will not apply to disposals of property by non-UK resident trustees (corporate or individual);
- the proposed CGT charge on the disposal of shares in property holding companies, or other indirect property interests, has been dropped;
- from 1 April 2013, there will be an annual charge on properties owned by companies, partnerships (with a corporate member) and collective investment schemes (UK or non-UK) (the ARPT or "Annual Residential Property Tax"); and
- the new CGT charge and the annual charge will not apply where a property is held for the purpose of (i) a property development business; (ii) letting to third parties on a commercial basis; or (iii) a property trading business; provided that the property is not occupied by a person connected to the company (e.g. the sole shareholder or, in the case of a property held by a company owned by a trust, the settlor or a beneficiary of the trust).
Offshore structures which are affected by the new tax charges but which are not able to complete any desired restructuring before April 2013 will now not be faced with a CGT charge on historic gains; only gains post 5 April 2013 will be chargeable.
The possibility of selling the shares in an existing offshore property holding company in the future rather than the property itself also remains an option, now that the proposed CGT charge on the disposal of shares in property holding companies has been dropped.
Affected offshore structures will need to balance future CGT, and the cost of the annual charge, against the inheritance tax exposure which could arise as a result of restructuring.
We welcome the Government's acceptance of many of the points raised in the consultation responses, but would still question the overall logic of the regime, the impact of which extends far beyond the original stamp duty land tax anti-avoidance target.
For further details view our briefing note on Holding & investing in UK residential property post Finance Bill 2013.