December 2012 (2/2)

Black Brick – Finance Bill Update

After months of uncertainty, on December 11th the UK Government announced the results of its consultation with the prime property industry regarding new taxes affecting homes valued above £2m. These proposed changes were first announced in the March Budget as part of the 2013 Finance Bill and are aimed at “certain companies, partnerships with company members and collective investment schemes (non-natural persons, or NNPs) who own residential dwellings valued above £2m.”

The new measures make a clear and important distinction between potential owner-occupiers utilising “non-natural” acquisition structures and business enterprises, which are more favourably viewed. Developers and buy-to-let investors are therefore among several groups exempt from the new levies and, in certain conditions, provided with relief from the previously announced higher 15% stamp duty rate.

The key changes are as follows:

A new annual charge

A new Annual Residential Property Tax (ARPT) from April 2013, charged at the rates outlined in March and detailed below. The charges will rise in line with inflation and will be based on valuations submitted by the property owner. Properties valued around the key threshold levels can ask for a free valuation.

Value ARPT
£2m – £5m £15,000
£5m – £10m £35,000
£10m – £20m £70,000
£20m+ £140,000

Capital Gains

In the original draft outlined in March, HMRC announced plans to extend the capital gains regime to include properties valued above £2m held by certain “non-UK resident, non-natural” persons. Broadly, the latest update reveals the Government now intends CGT only to be payable by those entities which pay the new ARPT. This approach brings a measure of consistency lacking in the original proposals. Importantly, trustees of offshore trusts will not be liable to CGT. The final but critical element affecting potential CGT charges is that any capital gain will start from April 6, 2013 and not be backdated from purchase.

How will these changes affect the property market?

At Black Brick we believe the news is unequivocally positive on several levels, particularly for our investment and developer clients, and we expect a marked pick-up in buyer interest and completed transactions in the coming weeks. First, the announcement provides clarity where there was uncertainty. There is little doubt that the potential for higher levies has been weighing on potential buyers. We have also mentioned in previous communications our concerns that high-end London homeowners with significant capital gains may sell in advance of a new CGT regime becoming law – resulting in a flood of new properties for sale. With the capital gain now rebased to April 2013, this now looks extremely unlikely.

Meanwhile for buy-to-let investors and developers, the news is better than many forecast, with effective exemptions from all the taxes and the green light to continue to structure their London property transactions utilising off-shore structures, all of course subject to certain conditions.

Delighted as we are with this announcement we continue to advise all clients to seek expert tax advice when acquiring a home or investment property in central London. It is also important for existing owner-occupiers of property above £2 million held in off-shore structures to take advice. We have a panel of tax experts that we work with and are happy to make recommendations, so please get in touch if you would like details. For clients that are considering coming out of their existing structures, we also have relationships with private banks that have an appetite to lend to individuals rather than corporates.