Changes To The Taxation Of High Value UK Residential Property


A number of very significant changes have been made to the taxation of residential property in the UK and draft legislation is now in place to implement the last of these with effect from the beginning of April 2013.

These changes concern residential property worth more than £2m, which is owned by ‘non-natural persons’, such as companies and the like.  They do not apply to residential property owned by individuals, nor to commercial property.

The thrust of the changes are to impose:

  • A higher Stamp Duty Land Tax charge on acquisition;
  • An annual charge on ownership; and
  • A capital gains tax  charge on profits, irrespective of the residence status of the vendor.

These notes are intended as guidance only particularly as the final details are not yet available. No action should be taken based on this briefing. Professional advice should always be sought . In addition  it  should  be borne in mind that, if owners plan to make changes before 1 April , Easter Monday falls on 1 April 2013 so that effectively the window for rearranging any existing structures will end on Thursday, 28 March 2013, the last working day before the Easter holiday period.


The Government has expressed concern for some time about what it perceives as a loss of revenue due to the process of ‘enveloping’ high-value residential property owned by non-UK residents.

Enveloping occurs when an individual acquires a property using an intermediary, usually a company, so that he owns the company which in turn owns the property, rather than owning the property directly.  The Government’s concerns about enveloping centre on the avoidance of Stamp Duty Land Tax (‘SDLT’) on a future sale by selling the shares in the company, rather than the property itself.  The transfer was not liable to SDLT as the property itself has not changed ownership (it was still owned by the company), but the economic ownership had changed as the company was then owned by someone else.  Capital Gains Tax (‘CGT’) was not generally payable where the person making the disposal was not resident in the UK for tax purposes, so a UK property ‘enveloped’ into a non-resident company would  not generally be exposed to a UK CGT liability when sold.  The Government decided that this was not acceptable and this is the reason for the changes.

The key changes

The first thing the Government did was introduce a new 15% rate of SDLT, followed by two further proposals in a consultative document published in May 2012.  The new SDLT charge and the further charges will only apply to the acquisition of residential property in the UK with a value of more than £2million by ‘non-natural persons’, by which is meant companies and other bodies corporate, collective investment vehicles and partnerships including one or more such entities.

In summary, the new rules comprise:

  • The 15% SDLT charge on the acquisition by non-natural persons of UK residential properties costing more than £2m from 21 March 2012;
  • An Annual Residential Property Tax (‘ARPT’) on non-natural persons who own UK residential property worth more than £2m from 1 April 2013; and
  • A CGT charge on the disposal of UK residential properties worth more than £2m by non-resident non-natural persons from 6 April 2013.

It is intended that the SDLT and CGT charges will come into effect from 6 April 2013, after which the anti-avoidance regime will be complete.  Purchasers of UK residential property worth more than £2m will be initially faced with a much higher SDLT charge of 15%, compared to the usual 7% and thereafter they will have to pay an ongoing annual charge (the ARPT) in lieu of the SDLT avoided when the property is eventually sold.  They will then have to pay CGT at the rate of 28% on any increase in the value of the property from its value at 6 April 2013 or, if acquired after 6 April 2013, its original cost.

The proposed rates of the ARPT are as follows:

£2m to £5m                          £15,000

£5m to £10m        £35,000

£10m to £20m            £70,000

Over £20m         £140,000

The CGT charge will be subject to a form of tapering relief where the property value is just over the £2m threshold.  The point of this is to avoid the situation where a rise in the value of a property puts it within the new regime, so that the CGT payable makes it more economically viable to sell the property for £1,999,999 than to sell it for over £2m and have the CGT charge reduce the net proceeds to less than £2m.

Some exemptions

Fortunately, it seems that HM Treasury and HMRC have listened to interested parties and the Finance Bill 2013 draft clauses issued for further consultation exclude some of the nastier proposals set out in the May 2012 consultation document. Steps have been taken to:

  • Narrow the definition of “non-natural persons” so that only properties owned by a company, corporate partnership or a collective investment scheme appear to be caught;
  • Remove some genuine business activities from the new regime, generally property development and rental businesses, although these relaxations do not apply straight away; and
  • Introduce a process to allow ‘de-enveloping’ without triggering a retrospective CGT charge.

Action now

What to do? This really depends on what the motive for the current ownership structure of the property was and whether it remains valid.  It is quite common for properties to be owned by a non-UK resident company for Inheritance Tax (‘IHT’) or anonymity reasons and a non-domiciled owner may decide it is worth paying the ARPT and CGT on disposal to protect their IHT position or to protect their anonymity.  It should be possible to unwind existing structures without a CGT charge and this could be an attractive proposition to those who do not have very good reasons for maintaining the status quo.  Going forward, prospective purchasers of high-value residential property must now factor in the 15% SDLT charge if they are to envelope the property for their own reasons and this will obviously add significantly to the overall cost.

At the very least, non resident owners should review their position without delay.

For help , please call Julian Dabek on 020 7553 7101 or Carl Barwick on 020 7553 7160.

Keith Graham – Managing Partner

Westbury Accountants and Business Advisors is an accountancy practice based in London. Westbury have been providing Accounting and Tax solutions to small and medium sized businesses since 1936. Talk to the team at Westbury on 0207 253 7272; or visit