Taxes Watered-Down but New Annual Charges Imposed on Corporate Mansions

on Dec 12, 2012
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**Draft Finance Bill Reveals Lower-than-Expected Luxury Property Tax**

Chancellor George Osborne’s previously-revealed plans to tax residential properties worth more than £2 million held in corporate structures have been watered-down, with lower capital gains tax and exemptions for landlords and property developers, The Times reported on 12 December 2012.
While it had been thought that from next year capital gains tax (CGT) would be charged on total profits, the new changes are actually less punitive than expected. According to the latest draft Finance Bill published yesterday, when a property held in a corporate structure is sold, capital gains tax at 28 per cent will be charged only on the portion of profits accrued from April 2013.

Although watered-down, the announced CGT changes have raised some questions. Gráinne Gilmore, the head of UK residential research at Knight Frank, said that while it had been thought that CGT changes would apply only to property held in offshore structures, it looks as if it might also include UK-held corporate structures, which currently pay the slightly lower corporate tax when assets are sold. It is expected that the government will clarify this matter in January.

!m[UK Government Announces Latest Tax Changes for Corporate-Held Residential Property Exceeding £2m ](/uploads/story/1023/thumbs/pic1_inline.png)Yesterday’s government statement also revealed certain changes in stamp duty. Properties worth more than £2 million bought using corporate structures have so far been liable to 15 per cent stamp duty tax. The draft Finance Bill says, however, that exemptions for landlords and property developers who buy in corporate structures could reduce the duty to 7 per cent — the same rate as individual purchasers of properties worth more than £2 million. A ‘claw back’ regulation is also to be introduced, meaning that companies will pay the additional 8 per cent, taking the total to 15 per cent stamp duty, if they fail to prove that the property has been used for genuinely commercial purposes within three years. Basically, the cost of anonymity — the main reason for buying in corporate structures — will be high for investors who cannot convince the taxman they are real landlords, The Times’ report explains.

**New Annual Charges to Be Imposed**
While the UK government watered-down luxury property taxes, it also decided to impose annual charges of up to £140,000 on residential properties above the £2 million bracket bought in offshore and onshore corporate structures. The new annual charge, which will be called the Annual Residential Property Tax (ARPT), is expected to come into effect on 1 April 2013 and will be payable by October 31st for the first year. Thereafter it will be due on or before April 30th of each year. The charge will amount to £15,000 on properties bought for between £2 million and £5 million, £35,000 for properties between £5 million and £10 million, £70,000 on properties between £10 million and £20 million and £140,000 on properties sold for more than £20 million.
This new annual tax could raise £68.5 million a year in the central London boroughs of Kensington and Chelsea and Westminster alone, where as many as 3,000 homes, with a present value of £17.3 billion are held in corporate vehicles, according to property consultancy firm Savills (LON:SVS).

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