On 31 May 2012 the Government published a consultation document setting out its proposals for the introduction of an annual charge on high value residential property owned by non-natural persons.
Individuals are subject to capital gains tax (CGT) on the gains in the value of their property. CGT also applies to trustees and personal representatives. CGT is taxed in a year of assessment during any part of which the taxpayer is resident or ordinary resident in the UK. For non-UK residents CGT only arises if the taxpayer carries out a business through a branch in the UK at the time of the disposal.
Companies pay corporation tax on their profits. Profits will include income and chargeable gains. If a company is resident in the UK then they are charged to corporation tax on all their worldwide profits. Companies not resident in the UK but who have profits in the UK are only charged to corporation tax if the company trades through a branch in the UK.
In the 2012 Budget the Government announced its proposals aimed at tackling tax avoidance. From 6 April 2013 the Government is considering extending the scope of CGT so that it applies to disposals of non-UK resident non natural persons and shares in UK residential property.
It was also proposed in the 2012 Budget that an annual charge be introduced on residential properties over £2m owned by “non-natural persons”. Again it is intended for this to be effective from April 2013. This is the so called “Mansion Tax”.
The annual charge will apply if a “non natural person” owns (either with or without a “natural person”) a freehold or leasehold property with a value exceeding £2m.
“Dwelling” means a self-contained dwelling and each dwelling in a property will be separately valued.
The annual charge will only apply if the dwelling is owned by a body corporate and does not apply to a developer.
The annual charge for 2013-14 is £15,000 for £2m-£5m rising to £35,000 for properties from £5m-£10m, £70,000 for properties from £10m-£20m and £140,000 for properties over £20m. Each year the annual charge will increase in line with CPI.
The due date for annual returns will be 15 April each year.
The annual charge is based upon the market value an the base date for valuation will be 1 April 2012.
Taxpayers will be able to submit proposed valuations to the Valuation Office before submitting their returns. In order to avoid penalties you will need to provide a professional valuation.
If you hold property in an enveloped structure then you will need to consider what action to take. You will need to balance the annual charges and CGT proposals against de-enveloping. You will also need specialist tax advice as to whether the de-enveloping will itself lead to a charge.
De-enveloping property may also expose non-UK domiciled individuals to UK inheritance tax. If therefore you do wish to de-envelop then you may want to consider alternative inheritance tax mitigation strategies.
Nothing further can really be done at this stage until draft legislation comes to the fore. Draft legislation is anticipated in the autumn of 2012.
If you would like any further advice at this stage then please contact Nick Attwell
on 0207 722 9898
or e-mail him at firstname.lastname@example.org