Proposed Property Tax Changes – A Sigh of Relief for London’s Landlords

We recently reported on the UK Government’s proposed tax changes relating to high value UK residential property.  The Government has now published its draft legislation for the Finance Bill 2013, confirming the proposals it made earlier this year.  However, our clients will be relieved to know that the proposed changes should not affect them.

Buy-to-Let Investors and Developers not Affected

The most important news for our clients is that, although the Government has confirmed that an annual charge will be introduced on properties valued at over £2m bought by non-natural persons through a corporate structure, this won’t affect companies with genuine commercial interests such as property rental companies, buy-to-let investors and developers.  For these companies, there will be reliefs and exemptions.  This also applies to the punitive 15% Stamp Duty already introduced, and we hope that the final legislation will back date the exclusions from when they were initially introduced in March 2012.

The Annual Residential Property Tax

For overseas buyers who simply buy high value property through a corporate vehicle for their own use, a £15,000 annual charge, called the Annual Residential Property Tax (ARPT), will apply to properties valued at £2m – £5m, a £35,000pa charge for properties between £5m and £10m and a £140,000pa charge for properties worth over £20m.

The Extension of Capital Gains Tax

The Government will be publishing draft legislation in January regarding the extension of Capital Gains Tax (CGT) but there have been some welcome amendments to the original proposals.   Firstly, the same reliefs that apply to genuine commercial businesses for ARPT will apply, secondly the definition of non-natural persons will be the same as for the ARPT and lastly, only gains accrued after April 5^th, 2013, will be chargeable.  The Government will be continuing with its new CGT charge of 28% for non- resident, non-natural persons disposing of high value residential property.  This will apply to the same individuals as the ARPT.

London’s Landlords can Rest Easy

The Government’s announcement is a huge relief for overseas investors who own London buy-to-let property in corporate or similar structures.  We believe the Government’s original proposals would have had a detrimental effect on the private rented sector and we welcome the decision to exempt companies with genuine business purposes.  Rightly, these amendments now mean ARPT and the extension of CGT will apply only to overseas investors who buy London property for their own use – these were always the Government’s target.  It won’t now affect genuine business investment in UK residential property.

We’re relieved the Government has recognised the contribution of the private rented sector towards the UK economy and this should ease concerns amongst overseas investors about the long term future of investment in UK residential property.  That means all our clients can rest assured they won’t be affected by the changes – it’s a clear indicator the Government recognises and encourages the role overseas investors play in the UK economy.