United Kingdom – Consultative Document on Fair Taxation of Residential Property
The U.K. government has released a consultative document1 designed to tackle tax avoidance and help 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 £2 million by certain “non-natural” persons (broadly companies, partnerships including companies, and collective investment schemes), and
• the proposed extension of capital gains tax (CGT) on the disposal of U.K. residential property by non U.K.-resident non-natural persons.
As it stands, there is a lack of clarity concerning an exemption for a property held by a company for the purpose of accommodation of employees and secondees.
The government announced these measures in Budget 20122 and has now published a consultation document on the proposals.
Any company owning residential property valued in excess of £2 million, even if the property is used to provide accommodation for employees, needs to consider whether it is likely to be caught by these new proposals. The proposals include:
• from 21 March 2012, a 15-percent rate of stamp duty land tax on acquisitions of residential dwellings costing more than £2 million by certain non-natural persons including companies, partnerships including a company, and collective investment vehicles);
• an annual charge on residential property owned by non-natural persons;
• the extension of CGT to gains on the disposals of residential property by nonresident companies and others, but not individuals.
The Annual Charge
The annual charge for the five years from 1 April 2013, will be based on the value of the property on 1 April 2012 if the interest in the property was owned on that date. If the property is acquired later, it will be the value on acquisition. Properties will need to be valued every five years.
The annual charge will be self-assessed as part of an annual-charge tax return and there will be a system of audits and penalties to encourage compliance. The valuation date of 1 April 2012, has been chosen so that valuations can be carried out before the charge comes in to effect in April 2013. Her Majesty’s Revenue & Customs (HMRC) suggests that a formal valuation of the property as at 1 April 2012, be obtained from a suitably qualified valuer of real estate to protect against potential penalties arising from incorrect valuations.
It is proposed that draft legislation for the annual charge and extension of CGT will be published later this year and introduced in Finance Bill 2013. There is no mention of an exemption for a property, held by a company, for the purpose of accommodation of employees and secondees, and any employers caught by these charges may wish to respond to the consultative document. Employers should certainly consider whether the charge will apply to them.
Responses to the consultation are sought by Thursday, 23 August 2012, and KPMG LLP (U.K.) will be involved in the consultation process. Please send any comments to your usual KPMG contact.