Strutt & Parker Considers Government’s Draft Finance Bill On Taxing Residential Homes

On 11 December the UK Government published its draft tax legislation and responses to consultations that have taken place over the summer. Strutt & Parker takes a look at the legislation, which will be included in Finance Bill 2013 and implements a number of tax policies previously announced at the Budget in March 2012.

The Chancellor has reiterated his hard-line approach to stamp duty tax avoidance, creating annual charges of up to £140,000 and capital gains tax for high-end houses owned by companies.There is more detail to come out over the coming weeks and months however the proposed annual charges have been adopted with a new tax called ARPT (annual residential property tax) to sit alongside the 15% SDLT (stamp duty land tax).

The announcement marks the end of a nine month wait for UK estate agents specialising in prime property that have complained since the Budget that uncertainty about the incoming charges was deterring overseas buyers from the UK market. The new ARPT will start at £15,000 for properties worth between £2m and £5m, go to £35,000 for properties between £5m and £10m, and £70,000 for properties between £10m and £20m.

For properties over £20m, the annual tax will be £140,000. However, the eye-watering new tax regime has an all-important exemption which will kick in once the Bill passes. Residential properties used for ‘genuinely commercial activities’ – ie, rental – will only be liable for the lower 7% SDLT announced in this year’s Budget for ‘ordinary’ purchasers. Such properties will also be exempt from the new ARPT.  “This means foreign owners who only use their property for a few weeks a year may be tempted to let it out to qualify for lower stamp duty – which in turn could stimulate local business and the economy” said Stephanie McMahon, head of research at Strutt & Parker .

Stephanie added: “For property markets to function most effectively they require clarity and the impact of uncertainty since March 2012 has been tangible, although we must bear in mind both the Jubilee and the Olympics add additional stalling factors. We now know that the taxation changes for “non-naturals” buying and owning property in the UK and the size of the potential tax haul is not insubstantial: our analysis of just four London boroughs puts the potential annual levy haul at £656m”.

The Treasury had initially said it would recoup £65m a year from the other new tax change - 15 per cent stamp duty, annual levy and capital gains tax. However, on Tuesday, it reduced the target to £30m after introducing exemptions for property-owning companies that it considered ‘authentic’, such as land estates, charities, farms and their farmhouses, and all commercial entities including let properties and development.

McMahon concludes: “With the changes that have taken place there is an opportunity for UK residents to gain better relative value to those purchasing in company structures or who have non-dom status. We anticipate a pickup in transactions next year, particularly in the £2m plus market.”