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The High Value Residential Property Regime

Last year the Chancellor announced a number of measures targeted at high value properties (defined as worth more than £2m) owned by non natural persons (NNP). A NNP is defined as a company, a collective investment scheme or a partnership where one or more members is a company. A trust is not a NNP.

The key measures in brief:

  • Stamp Duty Land Tax (SDLT) is payable at 15% where a non natural person acquires a UK property worth more than £2m.
  • An annual tax charge (ARPT) will be levied if residential property worth more than £2m is owned by a NNP.
  • The disposal of UK residential property worth more than £2m by a non natural person will be subject to Capital Gains Tax (CGT) at 28%.

The consultation period came to an end following which HMRC confirmed that these measures will be introduced. Some of the proposed legislation is, however, not as extensive as first drafted.

  • Commercially let and residential let properties will not be within the scope of the charges. Commercial property was always outside the scope. Relieving residential let properties is welcome news.
  • Where the disposal of a property is subject to UK CGT, it will only be gain arising after 5 April 2013 that will be chargeable under the new provisions. This means that properties affected by the new rules will be rebased as at 5 April 2013. It will be possible to opt out of the rebasing by election if it is beneficial to do so.
  • Where the property is worth just over £2m there will be some tapering to reduce the chargeable gain subject to tax.


The amount of ARPT will be worked out using a banding system based on the value of the property and will first be based on the value of the property at 1 April 2012.

Rate Bands  
Property Value Annual tax 2012/13
£2m to £5m £15,000
£5m to £10m £35,000
£10m to £20m £70,000
£20m plus £140,000

The ARPT will be payable by the NNP each year and will start 1 April 2013. The NNP will need to complete a ARPT return and make payment by 30 April. For the first year 12/13 the return and payment will be due by 31 October 2013. For the ARPT period starting 1 April 2014 and for all future years they will be due 30 April.

Under the banding system revaluations of the property will need to be carried out every five years.

The Capital Gains Tax (CGT) charge

The draft legislation containing the detail of the CGT charging provisions was published on 31 January and they will come into effect from 6 April 2013.

What disposals will be caught by the CGT charge?

CGT will be payable where there is a ‘relevant high value disposal’. It will apply where an interest in land, which has been a residential dwelling at some stage during ownership, is sold for more than the ‘threshold amount’ and the person disposing of the interest has been within the ARPT for one or more days.

UK Companies

It was originally thought that the CGT charge would only apply to a disposal by a non UK company.In fact, UK companies are also within the scope. Given that commercial and residential let properties are outside of the new provisions, the extent to which we envisage UK companies to be affected is limited.

Calculating the CGT

Gains from 6 April 2013

It will be the capital gain arising from 6 April 2013 that is subject to CGT. The gain arising up to 5 April 2013 will not be chargeable. Once the gain arising from 6 April 2013 has been calculated it will then be scaled depending on the length of time the NNP has been within the ARPT. This allows property partly held for a purpose that is outside of ARPT and partly otherwise caught to be subject to CGT on disposal only in relation to the gain arising from the respective part caught.

The gain prior to 6 April 2013

To the extent that any gain arose prior to 6 April 2013 that gain may still be chargeable under another part of the legislation. Anti avoidance legislation is wide in scope and includes the following:

  • Gains may be attributed to UK resident participators in certain companies. The gain attributed may include the pre 6 April 2013 gain.
  • If a non UK trust owns a company which in turn owns the UK high value property, gains pre 6 April 2013 will still be potentially matched to capital payments. This will catch the use of a property by a beneficiary in some circumstances.

What is outside the new rules?

The following will not now be caught by the new legislation:

  • A trust which holds property whether directly or through a nominee company.
  • A company which uses the property for a purpose which is outside the legislation.

Action required – existing structures

Where a structure is caught by the new measures it will be necessary to weigh up the benefit of the inheritance tax (IHT) shelter afforded by the ‘envelope’ versus the costs of the annual charge and a possible CGT charge on disposal by the NNP. We are currently reviewing existing structures and would urge anyone affected to seek our advice.

New acquisitions

If a high value residential property is being acquired for personal use then direct ownership is a strong option. The IHT exposure can be managed with debt and the SDLT charge and the ARPT will not apply. If the individual is not UK resident he will not be subject to UK CGT and if he is resident he may be entitled to main residence relief. Confidentiality of ownership can be achieved though a nominee corporate without disturbing the above.

Notwithstanding the new rules there may still be occasions when it is appropriate to use an envelope structure and acceptance of the new provisions will be key. In these circumstances there will need to be sufficient compelling reasons to justify the envelope structure. The IHT shelter and confidentiality are two key reasons and each case must be decided on its own merits.

This article is featured in the latest issue of Tax Plus.



Date: 25th February, 2013
Author: Liz Cuthbertson


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