New Tax Rules for Properties over £2m

New Tax Rules for Properties over £2m

Chris Lloyd

Property owners and their advisers need to understand the implications and costs arising from the new taxes being introduced next month. Obtaining professional valuation advice is a vital part of this process says Richard Meeson, Head of Valuations for Carter Jonas.

The draft Finance Bill 2013 introduces a new tax regime for “non natural” owners of high value (over £2m) residential property in the UK. These were announced in the 2012 budget and recently the government has published more details on the way they will come into effect. Generally these affect properties held in a corporate structure often used in the past to protect anonymity and/or to avoid Stamp Duty Land Tax at the time of purchase.

The new Annual Residential Property Tax (ARPT) is an annual charge on such properties based on their value as at 1st April 2012. The tax charge (which will subject to annual indexation) will be £15,000pa for properties with a value of between £2m and £5m, £35,000pa for those between £5m and £10m, £70,000pa between £10m and £20m rising to £140,000pa for those with a value above £20m. The tax will apply from 6th April 2013 and tax payers will need to make a return to HMRC by 1st October 2013 including confirmation of the value. Valuations will be subject to scrutiny by the Valuation Office Agency so it is important that valuations are accurate and justifiable.

High value properties will need to be re-valued again at 1st April 2017 to determine which band for ARPT should apply from 6th April 2018.

Carter Jonas recommends that professional valuations are carried out now, particularly where properties are close to a band threshold, to establish which band is appropriate for each property. Helpfully this tax was announced in the budget on 21st March 2012, a few days before the actual valuation date, and this had an immediate effect on buying behaviour on high value residential property which may help to support an argument that, at the valuation date, any property at around the £2m threshold would have been unlikely to sell at a price above £2m.

Valuations should be prepared by Chartered Valuation Surveyors who are professional members of the RICS and who are also part of the RICS Registered Valuers scheme who are bound to follow the exacting requirements of the RICS Red Book which seek to ensure valuers act with integrity, independence and objectivity. Professional valuations should be backed up with comparable evidence and methodology to support the value reported.

The tax changes also introduce CGT at a 28% charge on gains made on ARPT properties starting with a base date of 6th April 2013. It is therefore critical to obtain the correct valuation at this date to set the base value to enable future gains to be computed.

It is strongly advised that a professional valuation is commissioned as soon as possible on properties which might fall close to or above a value of £2m in April 2012 providing values at April 2012 and April 2013 to establish what liabilities will arise under the ARPT and CGT changes. There are also higher Stamp Duty Land Tax charges for high value properties purchased by non natural purchasers.

The legalisation is still in draft form at present and may be subject to change. Professional legal, tax and valuation advice should be sought before making any changes to ownership structures.