In our July 2012 Real Estate Bulletin we commented on the Government’s consultation entitled “Ensuring the fair taxation of residential property transactions” which covered the proposed introduction, from April 2013, of an annual charge on residential property worth over £2m and owned by specified non-natural persons (including companies, partnerships with a corporate partner and collective investment vehicles (“NNP”)). Property held by trusts will not be affected.
The consultation closed in August 2012 and on 11 December 2012 draft legislation was published for inclusion in the Finance Bill 2013 which would introduce a new tax to be known as “annual residential property tax” (“ARPT”), the aim of which is to dissuade individuals from holding dwellings for personal use in “corporate wrappers” and to thereby try to ensure that subsequent transfers are subject to the full SDLT rates applicable to property transactions.
ARPT will be payable by NNP’s who have a chargeable interest, essentially an interest, right or power in or over land in the UK, in a “single dwelling” valued at over £2m. There are however a significant number of exemptions which are intended to ensure that dealings by “genuine businesses carrying out genuine commercial activity” are excluded.. By way of example this will include properties held by charities for charitable purposes, student accommodation, care homes, hospitals and hotels.
A charge will be applied to each interest in a single dwelling. A rule similar to that relating to Stamp Duty Land Tax in S116(1) of the Finance Act 2003 which treats the acquisition of 6 or more dwellings as non-residential is not incorporated as it is seen as a potential avoidance opportunity. It is possible however that an alternative relief may be available. There are detailed provisions for the ownership of separate interests, for example freehold and leasehold interests, by a single NNP and for the ownership of separate interests by connected NNPs whereby the intention is that the interest are aggregated so that ARPT will apply.
Generally speaking, the £2m valuation is measured by reference to the market value at the last valuation date. The valuation dates are 1 April 2012 and thereafter 1 April at each 5 year interval or, if acquired after 1 April 2012, the date of acquisition of an interest. A contractual obligation to acquire an interest is not sufficient to incur ARPT but substantial performance of the contract will ie notwithstanding that the acquisition may not have actually completed. A residential property will need to be valued every 5 years to establish the level of charge. No specific valuation requirements are currently prescribed and so the onus is on the taxpayer to submit an appropriate valuation and, where called upon, to be able to justify it. Meeting the ownership criteria for a single day in the relevant chargeable period will result in a charge to ARPT. The first chargeable period for ARPT begins on 1 April 2013 and ends on 31 March 2014.
It is proposed that the amount of ARPT will be as set out in the table below:
|Annual Chargeable Amount
||Taxable Value of the Interest on the Relevant Day
||Over £2 million up to £5 million
||Over £5 million up to £10 million
||Over £10 million up to £20 million
||Over £20 million
The chargeable amounts are to be increased annually by reference to the increase in the consumer prices index for the year to September of the previous year.
ARPT will be applied at the start of the relevant chargeable period and where an interest is acquired midway through a chargeable period a pro rata charge will be applied. Application can be made, albeit within strict time limits, for refunds where interests are disposed of midway through a specific period. Entering into a contract to dispose of an interest does not qualify as a disposal but substantial performance of that contract may do so at which point the charge applies.
The intention is that a separate ARPT Return in respect of each single dwelling interest must be filed within 30 days of the first day of a chargeable period where ARPT applies. For the first ARPT chargeable period an extended filing period has been set which for an existing interest is 1 October 2013.