The government has today launched a consultation on two Budget 2012 measures designed to tackle avoidance and ensure that individuals and companies pay a fair share of tax on residential property.
The consultation explores the proposed details of a new annual charge on residential properties valued over £2m owned by certain ‘non-natural’ persons (broadly companies, partnerships including companies, and collective investment schemes). It also sets out details of the proposed extension of the capital gains tax (CGT) regime to the disposal of UK residential property by non-resident, non-natural persons.
In order to be consistent with the annual charge, it is envisaged that the CGT extension will only apply to residential properties disposed of for more than £2m.
Both measures are part of a package to ensure the fair taxation of residential property and to clamp down on avoidance, including through ‘enveloping’. This practice is a major source of property tax avoidance where a corporate package is used to wrap up a residential property as a way of avoiding a Stamp Duty Land Tax (SDLT) charge. As well as being a deterrent to enveloping, the CGT extension will create a more equal tax treatment between UK residents and non-residents.
David Gauke, Exchequer Secretary to the Treasury, said:
The Government is determined to take action against those who attempt to avoid paying their fair share of tax on residential property. While most people pay their taxes, there are some who try to avoid paying their fair share. We are determined to clamp down on tax avoidance of all kinds and by introducing these two changes, we are taking action to ensure that everyone pays the tax they owe when buying and selling high-value residential property.
Notes for Editors
Read the consultation on Ensuring the fair taxation of residential property transactions.
The consultation will be open for 12 weeks and will close on 23 August 2012. The government will publish a response to the consultation in the autumn.
Draft legislation for the annual charge and extension of CGT will be published in the autumn and introduced in Finance Bill 2013.
The Budget package to ensure the fair taxation of residential property consisted of:
- a 15 per cent rate of SDLT on acquisitions of residential dwellings costing more than £2m by certain ‘non-natural’ persons (companies, partnerships including a company and collective investment schemes). This measure came into effect at Budget 2012 and will be legislated in Finance Bill 2012
- an annual charge on residential property valued over £2m owned by non-natural persons, to come into effect from 1 April 2013
- the extension of CGT to gains on the disposal of residential property by non-resident companies and others (but not individuals), to come into effect from 6 April 2013
This package complements a wider package of measures to tackle SDLT avoidance announced at Budget 2012, including: an extension of the General Anti-Abuse Rule (GAAR) to SDLT; new legislation to close down an avoidance route/scheme using the sub-sales rules and a wider consultation on the SDLT sub-sales rules. The Chancellor was clear in his Budget statement that the government will act swiftly to close down further SDLT avoidance schemes as it becomes aware of them.