The new Draft Finance Bill includes, as feared, a bunch of new property taxes: there?s a new annual levy for non doms with homes worth over ?2m, and an extension to capital gains tax, at 28%, for ?non-residential non natural persons disposing of interests in UK residential property valued at over ?2 million.?
The annual levy will be, for properties valued at ?2-5m, ?15,000; for properties valued at ?5-10m, ?35,000; for properties valued at ?10-20m, ?70,000; for properties valued at more than ?20m, ?140,000.
The Bill is riddled with exemptions, meaning that ?real? businesses ? developers, investors etc ? won?t be as badly affected as all that; SDLT will remain at 7%, rather than 15%, for ?genuinely commercial activities.?
Here are the main property clauses:
Annual residential property tax ? As announced in Budget 2012, and following consultation over the summer, legislation will be introduced for an annual residential property tax to be payable by certain non-natural persons that own interests in dwellings valued at more than ?2 million. This tax will come into effect on 1 April 2013. It is an annual tax, and returns and payments will be required annually. Returns and payment will usually be due on 30 April, but for the first year returns will be due on 1 October 2013 and payment by 31 October 2013. The amount of tax payable will depend upon which of the fixed bands the dwelling is within. There are a number of reliefs available if the dwelling is being, or is to be, used for a genuine commercial property rental, or trading business; or if it is run as a trade. The response to the consultation was published on 11 December 2012 and is available on the HM Treasury website.
Stamp duty land tax (SDLT): 15% rate ? Finance Act 2012 introduced a 15 per cent rate of stamp duty land tax on the acquisition by certain non-natural persons of dwellings costing more than ?2 million. The scope of the 15% rate was included as part of the consultation on the annual residential property tax. A number of reliefs will be introduced to reduce the rate to 7% where there is relief against the annual residential property tax. However, these reliefs will only apply if the property continues to satisfy the qualifying conditions throughout the following three years. If it does not, additional SDLT will become payable.
Capital gains tax: extension to certain non-natural persons disposing of UK residential property valued at over ?2 million ? Legislation will be introduced to bring in a capital gains tax charge payable by certain non-natural persons when they dispose of interests in high value residential property in the UK on or after 6 April 2013. Broadly, the new tax charge will be payable by these non-natural persons, on gains accruing on or after 6 April 2013, if they were liable to the new annual residential property tax on the property in question. The TIIN will be published alongside the draft legislation, in January 2013. Details of the policy are set out in the consultation response document published on 11 December 2012, which is available on the HM Treasury website.
Stamp duty land tax: transfer of rights ? As announced in Budget 2012, and following consultation, legislation will be introduced to reform the SDLT rules for transfer of rights. The new legislation aims to ensure that SDLT will generally be charged only on the end purchaser of the relevant land, as under the current rules; but it also aims to provide clearer protection against schemes aiming to avoid this charge.
Real Estate Investment Trusts (REITs) ? As announced in Budget 2012, and following consultation over the summer, legislation will be introduced to allow the income from a UK REIT investing in a UK REIT to be treated as income of the investing REIT?s tax exempt property rental business. The legislation will take effect for accounting periods beginning on or after Royal Assent to Finance Bill 2013. As part of the same consultation, the Government considered the role REITs can play in supporting the social housing sector. Following this consultation, the Government has concluded that reforming the REIT regime to support social housing is neither viable nor necessary at this time. A response to the consultation was published on 11 December 2012 and is available on the HM Treasury website.
Lease premium relief ? As announced at Budget 2012, and following informal consultation over the summer, legislation will be introduced to limit the availability of lease premium relief where leases are of more than 50 years? duration. The legislation will take effect for leases granted on or after 1 April 2013 for companies and on or after 6 April 2013 for individuals and partnerships.
Stamp duty land tax: leases simplification ? As announced in Budget 2012, and following informal consultation over the summer, legislation will be introduced to simplify the reporting requirements that apply when a lease continues after the expiry of its fixed term and where an agreement for lease is substantially performed before the actual lease is granted. The rules on abnormal rent increases will also be abolished.
New legislation, which will be open for technical consultation until Wednesday 6 February 2013, covers policies announced in the March Budget, including:
- A General Anti-Abuse Rule, to target abusive tax avoidance schemes;
- Corporation tax reliefs to encourage investment in the production of animation, high-end television and video games;
- An ?above the line? R&D credit to encourage investment in research and development.
- A package of property tax policies including a new annual residential property tax to be payable by certain non-natural persons that own interests in dwellings valued at more than ?2 million, and an extension of the capital gains tax regime to non-residential non natural persons disposing of interests in UK residential property valued at over ?2 million. The capital gains tax will be payable only on gains accruing on or after 6 April 2013. For consistency, the Government is considering extending the CGT regime to also apply to disposals of high value residential property by UK NNPs. The Government would welcome views on the impact and implementation of this potential change by 18th January.
- Introducing a statutory residence test, abolishing ordinary residence and eliminating the concept of ?ordinary residence? for tax purposes as far as possible.
The Government will also publish draft legislation for policies announced in the 2012 Autumn Statement, including:
- Give HMRC the power to implement a special accounting scheme for air passenger duty that will allow eligible operators to submit annual returns.
- Make changes to the carbon price floor legislation to clarify the tax point, taxable person and the treatment of auto-generators and Combined Heat and Power stations.
- Exempt Universal Credit from income tax.
- To clarify the tax treatment of banks? Tier 2 regulatory capital instruments, as announced by the Financial Secretary to the Treasury on 26 October. This clarification will ensure that the coupon on Tier 2 capital which is already in issue or yet to be issued will be deductible for the purposes of a bank computing its profits for corporation tax purposes. This will provide banks and investors with certainty.
- Make amendments to allow the Finance Act 2003 inheritance tax measures on the treatment of open-ended investment companies (OEIC) and authorised unit trusts (AUT) to work in the way that was originally intended.
- Amend the restrictions on when companies resident in the European Economic Area can surrender losses from their UK branches as group relief from corporation tax in the UK.
- Introduce further minor simplifications to the remittance basis rules as they affect exempt property where such property is lost, stolen or destroyed and works of art on public display, and clarify the interaction between the time limits for the exempt property rules.
- Ensuring that conditions imposed by a statutory body by which one company will leave a group at a pre-determined date will not prevent claims to corporation tax group relief. This targeted legislative amendment to the group loss relief rules will not remove the current loss-buying avoidance protection.
- Ensure that a consistent time limit for repayment applies for all overpaid tax. This legislation will also correct an anomaly relating to time limits for loss relief.
There?s also a bit on building societies:
- Clarify the tax treatment of new Core Tier One regulatory capital instruments which Building Societies? have developed to ensure compliance with regulatory capital requirements under the forthcoming Capital Requirements Directive IV. As Building Societies? are mutual organisations their constitutions prevent them from issuing ordinary share capital in the same way as other companies. This change to secondary legislation will ensure that these new instruments, which will perform a similar function to ordinary share capital, will also be taxed in the same way as ordinary share capital.
The full Bill is a bit of beast with many pages, so bear with us while we digest? If you can face it, here?s a link to all the statements and info straight from the Treasury, and here?s a link to the property tax consultation draft document.
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