As expected, the draft legislation contained in the draft 2013 Finance Bill essentially confirmed the measures proposed for the taxation of high value property in the 2012 Budget. It includes the annual charge for £2million+ property held by 'non-natural' persons (to be known as the Annual Residential Property Tax) and extends the CGT regime where a 'non-natural' person disposes of such a property.

However, it is clear that the Treasury have also had regard to many of the concerns raised by the industry as part of the subsequent consultation process by:

• widening the exclusions to the annual charge to property rental businesses, property development businesses and property interests exploited in the course of a trade;

• applying those exclusions to the higher (15%) SDLT charge that was introduced from Budget day; and

• limiting the scope of the capital gains tax charged such that;
- only the gain that arises from 6 April 2013 is charged when a 'non-natural' person disposes of a property.
- the sale of shares in a property holding offshore company will remain outside of the scope of capital gains tax.

Realistically, there was little chance of the proposals to introduce the annual charge and widen the capital gains tax net being abandoned. However, the widening of the exemptions to the annual charge, for genuine lettings business and property development companies, will be welcomed by the property industry. Importantly, this will protect the wider economic activity that results from investment and development activity in this part of the market and help protect values.

This note looks at the application of the new charges, the impact this may have on buyers and existing owners of £2million+ property and the wider implications for the market.

The measures

These will take effect from 1 April 2013, where a property worth over £2million, as at 1 April 2012, is held by a 'non-natural' person.

The Annual Residential Property Tax (ARPT) will be increased each year in line with the general rate of inflation; however, the value bands that determine the level of the charge will not. This raises the prospects that as property values rise:

• more property within corporate structures becomes caught by the charge; and

• properties initially just below one of the thresholds become chargeable at a higher rate upon subsequent five year revaluations.

Importantly, exemptions have been widened to include:

• those dwellings held by property development companies (whether or not the company has a two year track record) or as trading stock;

• dwellings held for a property rental business (one or more properties) where they are let out to third parties on a commercial basis;

• dwellings that are conditionally exempt from inheritance tax, regularly opened to the public or used to provide accommodation or other services to the general public on a commercial basis;

• farmhouses occupied by working farmers;

• dwellings held by trading companies for the use of employees in the trade;

• dwellings owned by a charity and held for charitable purposes; and

• dwellings owned by public or government bodies or for social housing.

However, formal claims will be needed to obtain relief. The charge is to be administered via a self assessment return to be made by 1 October 2013; with payment by 31 October 2013. Thereafter, returns and payment will need to be made by 30 April each year.