Finance Bill 2013: New Residential Property Taxes in the United Kingdom

Size: px

Start display at page:

Download "Finance Bill 2013: New Residential Property Taxes in the United Kingdom"

Kelley Alexander
5 years ago
Views:

1 Finance Bill 2013: New Residential Prperty Taxes in the United Kingdm February 2013 Bstn Brussels Chicag Düsseldrf Frankfurt Hustn Lndn Ls Angeles Miami Milan Munich New Yrk Paris Orange Cunty Rme Seul Silicn Valley Washingtn, D.C. Strategic alliance with MWE China Law Offices (Shanghai)

2 This nte utlines the new residential prperty tax charges fllwing the publicatin f draft legislatin n 11 December 2012 and, latterly, 31 January 2013 by the UK Gvernment. Fllwing bth publicatins we nw have further details f all the new residential prperty tax charges and their respective reliefs: The annual residential prperty tax charge (ARPT), which applies t chargeable interests in residential prperties wned n, r acquired after, 1 April 2013 r cnverted frm a nn-residential prperty after that date. Capital gains tax (CGT) t apply at a rate f 28 per cent n the sale r dispsal f residential prperty (ARPT-related gains) applicable t dispsals frm 6 April The 15 per cent rate f Stamp Duty Land Tax (SDLT), which has been in frce since 21 March 2012 fr residential prperties. In each case, the respective charges will be triggered nly where: The value f the residential prperty in questin is ver 2m; and The prperty is purchased r wned by a nn-natural persn. The Gvernment cnsultatin n the technical aspects f these charges is pen fr cmments until 22 February 2013 but ur expectatin is that the rules will be enacted substantially as currently drafted. Nn-Natural Persns Nn-natural persns are cmpanies, cllective investment schemes and partnerships where ne r mre members f the partnership is either a cmpany r a cllective investment scheme. Nn-natural persns may be UK resident r nn-uk resident. Trustees are nt included in the definitin f nn-natural persn. This means that trusts (including thse with crprate trustees) that wn interests in UK residential prperty directly at trust level will nt fall within the scpe f the charges. If, hwever, a UK prperty interest is wned by a nn-natural persn held within a trust structure, the charges will apply. Residential Prperty The charges will apply t residential dwellings nly, which may be all r part f a residential r mixed use prperty. In particular: If the residential dwelling is part f a larger prperty that includes nn-residential parts (e.g., a penthuse flat abve an ffice blck), nly the residential part will be valued. If the prperty cnsists f a number f self-cntained dwellings (e.g., a blck f 10 self-cntained flats), each dwelling will nrmally be valued separately. If the prperty cmprises a main dwelling with ne r mre parts suitable fr use as staff accmmdatin, the main dwelling in its entirety will be valued. Sme types f prperty that may therwise satisfy the definitin f residential dwelling will be exempt, including barding schl accmmdatin, hspitals, student halls f residence, military accmmdatin, care hmes and prisns. ARPT The rate f the ARPT will depend n the value f the prperty interest, with prperties being required t underg a valuatin every five years. The value f the prperty that will be relevant fr the first five return perids frm 1 April 2013 will be: The value n 1 April 2012, if yu wned yur interest in the prperty at that date; The market value n acquisitin, if the prperty was acquired after 1 April 2012; r 2

3 If the dwelling is a new prperty r an existing building that has been altered s that it is t be a dwelling, the value at the date either f entry n the Cuncil Tax Valuatin Lists (r Nrthern Ireland Valuatin List), r when it is ccupied, whichever is the earliest. The valuatin determines the applicable rate f the ARPT until 1 April 2018 accrding t the table belw. On that date a new valuatin will be due, fr the valuatin date 1 April The valuatin must be reprted n the ARPT return. Valuatins must be n an pen market willing buyer, willing seller basis. Date Prperty Value ARPT Rates m - 5m 15,000 5m - 10m 35,000 10m - 20m 70,000 20m + 140,000 The ARPT rates will be indexed t the Cnsumer Price Index (CPI) and increased in April each year. The threshlds are, hwever, expected t remain cnstant. A separate return will be required fr each prperty falling under the ARPT charge. Each return will have t cntain details abut the prperty, including its full address, Land Registry title, the interest held, the beneficial wners f the prperty and the valuatin f the prperty. The first returns and payments will be due by 1 Octber 2013 and, subsequently, by 30 April each year. Any charges due will have t be paid by 31 Octber each year. Where a prperty cmes within the charge part way thrugh the year, a return and payment will be required within a strict timeframe: 30 days n acquisitin f an interest r 90 days fr anther reasn (e.g., the cmpletin f cnversin wrks). CGT n ARPT-related gains CGT will be payable by nn-natural persns (bth resident and nn-resident in the UK) in respect f gains realised n r after 6 April 2013 n dispsals f the whle r part f a chargeable interest in a UK residential prperty wrth ver 2m. The draft legislatin takes UK resident cmpanies ut f crpratin tax fr the prtin f any gain that is ARPT-related and brings ARPT-related gains within the CGT charge instead at the 28 per cent rate. The prtin f any gain which is nt ARPTrelated will remain in the charge t crpratin tax. The ARPT-related gains are calculated n the gain ver the market value f the prperty n 6 April In sme cases, e.g. where the value f the prperty n 6 April 2013 is less than the riginal base cst (usually the purchase price), it will be pssible t elect fr the ARPT-related gains t be calculated with reference t the riginal base cst instead. The charge is calculated by reference t the number f days (starting frm 6 April 2013) fr which the prperty was in the charge t the ARPT. Days where a relief is available will nt be cunted. A frm f tapering relief is available where the cnsideratin fr the purchase is clse t the 2m threshld and the ARPTrelated gains are relatively large. The relief perates by taxing the lwer f the actual gain r the tapered gain. It is imprtant t nte that relief fr ARPT-related lsses will be restricted. ARPT-related lsses can nly be set against ARPT-related gains realised in the same year and subsequent years. Lss relief will nly be allwed fr lsses in excess f the 2m threshld (e.g. if a ARPT-related lss f 2.6m is realized, nly 600k f the lss wuld be allwable t set against ARPT-related gains). 3

4 15 Per Cent Rate f SDLT Since March 2012, differential rates f SDLT have applied t the purchase f high value residential prperty in the UK. Where the purchaser is a nn-natural persn, the applicable rate is 15 per cent. If the purchaser is nt a nn-natural persn, the 7 per cent rate applies. Reliefs The main situatins in which a relief is available are summarised belw: Where the prperty: is held as part f a prperly cmmercial prperty rental business; is held as part f the stck f a prperly cmmercial prperty trading business fr the sle purpse f resale; r is acquired in the curse f a prperly cmmercial prperty develpment trade but in each case relief is nt applicable at any time when a nn-qualifying individual is permitted t ccupy the prperty. Nn-qualifying individual is a very wide cncept but bradly speaking includes any individual wh is beneficially entitled t the prperty interest in questin and anyne cnnected with that individual. Cnnected persns include a spuse r civil partner, relatives (siblings, ancestrs r lineal descendants) and their spuses/civil partners, the trustees f any settlement f which the individual is a settlr and may include certain crprate entities wned by such settlements. Where the prperty is a dwelling wned by a business (r a member f the same grup) that carries n a prperly cmmercial business (nt including a prperty rental business, a prperty develpment trade r a prperty trading business) and which is ccupied as living accmmdatin by certain emplyees (r partners if the trade is carried n by a partnership) fr purpses that are slely r mainly purpses f the trade. Relief it nt available where the emplyee (r partner) ccupying the prperty is entitled t a 5 per cent r greater share f the prfits f the trade, r f the entity wning the dwelling r is an emplyee prviding certain dmestic services. Where the prperty is held by charities fr charitable purpses. Where the prperty is held as part f a business (such as histric huses) that make dwellings available t the public fr at least 28 days each year n a cmmercial basis. Where the prperty is a farmhuse wned as part f a prperly cmmercial farming trade and which is ccupied by a farm wrker with a substantial invlvement in the day t day wrk f that trade. If a relief is applicable, it must be claimed by the chargeable persn in the apprpriate return n an annual basis. Where a relief is applicable, SDLT will generally be payable at the reduced rate f 7 per cent and the prperty shuld be exempt frm ARPT and the charge n ARPT-related gains. Change in Prperty Status and Qualifying Fr Reliefs It is wrth nting that any applicable reliefs will be withdrawn if the purpse fr which the prperty is held changes during the curse f the relevant tax year and the cnditins fr the relief cease t be satisfied. Fr instance, if fr six mnths the prperty is held fr the purpse f a genuine prperty develpment business, and fr the remainder f the year it is nt, half f the relevant charges will be due fr that year. With respect t the 15 per cent rate f SDLT, the relief will cease t apply if, within three years f the effective date f the transactin, the prperty n lnger satisfies the cnditins f the relevant relief. Under these circumstances there will be additinal SDLT t pay. 4

5 What Shuld Yu D Nw? In rder t decide what actin t take, persns wning residential prperty in the UK must determine whether r nt they are caught by the new rules. Individuals wh wn UK prperty directly in their wn names and fr their wn benefit are nt caught by the new charges and need take n further actin. Cmpanies (r ther nn-natural persns) acquiring r hlding UK residential prperty wrth mre than 2m n the relevant valuatin date are caught within the scpe f the new charges. Bradly speaking, there are three pssible utcmes: 1. One f the reliefs is applicable. The relief must be claimed in the relevant return. The first ARPT return, including the valuatin, will be due by 1 Octber 2013 and the tax must be paid by 31 Octber N reliefs are applicable. The returns must be made and charges paid as they fall due. The first return is due by 1 Octber Restructure befre 1 April 2013 in rder t avid the charges becming applicable. This might invlve either restructuring t avid wnership by a nn-natural persn, r taking steps t qualify fr a relief that wuld nt currently be applicable. Cmmn examples f situatins that are likely t be caught include the fllwing: A nn-uk resident trustee wh wns a UK residential prperty via an underlying cmpany, where the UK prperty is ccupied by a beneficiary f the trust. In this situatin, even if a market rent is paid, it is highly unlikely that the prperty rental relief wuld be applicable as, in mst cases, the beneficiary wuld be a nn-qualifying persn. The ARPT wuld be payable annually and CGT wuld be payable n dispsal. A nn-uk resident individual wh wns UK residential prperty via a nn-uk resident cmpany. If the individual r a member f his r her family uses the prperty as a hme in the UK, this wuld be within the scpe f the charges. If it was rented t third party tenants as part f a prperty rental business, hwever, the relief shuld be applicable and must be claimed annually. A nn-uk cmpany that wns a prperty in the UK fr use by ne r mre f its senir emplyees when they are in the cuntry n business. In this situatin it will depend n the entitlement f the emplyee t prfits f the trade as if, fr example, the emplyee is als a sharehlder f mre than 5 per cent f the business, n relief wuld be applicable and the ARPT wuld be payable. If yu already wn r are cnsidering the purchase f UK residential prperty, and wuld like advice n whether the charges apply t yu, including whether a relief might be applicable r if yu have any restructuring ptins, please get in tuch with yur McDermtt cntact withut delay. Fr mre infrmatin, please cntact yur regular McDermtt lawyer, r: Claire Murray: cmurray@mwe.cm Clare Mrisn: cmrisn@mwe.cm Rasha Albazaz: ralbazaz@mwe.cm Fr mre infrmatin abut McDermtt Will & Emery visit The material in this publicatin may nt be reprduced, in whle r part withut acknwledgement f its surce and cpyright. Finance Bill 2013: New Residential Prperty Taxes in the United Kingdm is intended t prvide infrmatin f general interest in a summary manner and shuld nt be cnstrued as individual legal advice. Readers shuld cnsult with their McDermtt Will & Emery lawyer r ther prfessinal cunsel befre acting n the infrmatin cntained in this publicatin McDermtt Will & Emery. The fllwing legal entities are cllectively referred t as "McDermtt Will & Emery," "McDermtt" r "the Firm": McDermtt Will & Emery LLP, McDermtt Will & Emery AARPI, McDermtt Will & Emery Belgium LLP, McDermtt Will & Emery Rechtsanwälte Steuerberater LLP, McDermtt Will & Emery Studi Legale Assciat and McDermtt Will & Emery UK LLP. These entities crdinate their activities thrugh service agreements. McDermtt has a strategic alliance with MWE China Law Offices, a separate law firm. This cmmunicatin may be cnsidered attrney advertising. Prir results d nt guarantee a similar utcme. 5

briefing The Enterprise Investment Scheme Tax reliefs

briefing The Enterprise Investment Scheme Tax reliefs briefing January 2016 The Enterprise Investment Scheme This nte prvides a summary f the Enterprise Investment Scheme and has been prepared based n the law up t and including the Finance (N 2) Act 2015.