The Government has today published the draft legislation for the new capital gains tax (CGT) charge on UK residential property.
You need to know about these rules if you have a company which holds a UK residential property worth more than £2m.
- tax will be charged at 28%;
- on gains realised on disposals for more than £2m;
- only gains accruing post 5 April 2013 will be subject to tax;
- gains subject to the new charge will not be chargeable on the shareholder of the company under existing anti-avoidance rules (section 13 Taxation of Chargeable Gains Act 1992);
- the new CGT charge will only apply for periods when the property is subject to the new Annual Residential Property Tax (ARPT).
The legislation provides that:
- from 6 April 2013, a new 28% CGT charge will apply on disposals of properties by UK and non-UK resident companies, partnerships (with a corporate member) or collective investment schemes;
- the charge will apply:
- if the ARPT was payable on the property for any day while it was owned; and
- the property is valued at more than £2m when it is disposed of;
- the CGT charge will only apply to gains accruing on properties on or after 6 April 2013, so properties are effectively rebased to their 5 April 2013 market value;
- where the ARPT is not payable for part of the period a property is owned, only part of the post 5 April 2013 gain will be subject to tax. The part of the gain subject to tax is calculated by reference to the number of days on which the ARPT was payable during the post 5 April 2013 period of ownership;
- if the property is owned by a non-UK resident company, any gain subject to the new CGT charge will not be attributed up to the shareholders of the company under s 13 Taxation of Chargeable Gains Act 1992. Part of the gains on a disposal may not be subject to the new CGT charge (for example, where the property was not subject to the ARPT for part of the period of ownership). Those gains will still be attributed up to the shareholders of the company under s 13;
- a property is relieved from the ARPT on any days when it is held for the purpose of (i) a property development business; (ii) letting to third parties on a commercial basis; or (iii) a property trading business; as long as the property is not occupied by a person connected to the company (e.g. the sole shareholder or, in the case of a property held by a company owned by a trust, the settlor or a beneficiary of the trust);
- the new CGT charge will not apply to disposals of property by non-UK resident trustees (corporate or individual);
- for UK companies any element of the gain not charged under these provisions is subject to corporation tax.
The possibility of selling the shares in an existing offshore property holding company in the future rather than the property itself still remains as the proposed CGT charge on the disposal of shares in property holding companies has been dropped.
Affected offshore structures will need to balance future CGT, and the cost of the ARPT, against the inheritance tax exposure which could arise as a result of restructuring.
For further details view our updated briefing note on Holding & investing in UK residential property post Finance Bill 2013.