Warning: High Value Property Tax

Published: 16 February 2013

Here is a serious health warning to all property investors.  Just when you thought you had enough complications and taxes to deal with, the Government are soon to introduce the Annual Residential Property Tax (ARPT) which will come into effect from 1st April 2013.

This new tax is designed to ensure fairness in taxation of residential property transactions and, in particular to tackle tax avoidance by using a corporate entity as a conduit to buying high value residential property.

ARPT is payable by companies on high value residential "dwellings" valued at £2 million or more in the UK.  There are several detailed definitions of what constitutes a "dwelling" for the purposes of ARPT, each one designed to catch only the residential elements of a building even if this is located within a mixed use development.

"Company" means a company or other corporate body, a collective investment vehicle (such as a unit trust or an open ended investment company) or a partnership which includes one of the above. Most corporate vehicles have therefore been covered to avoid any loopholes being used by some savvy tax advisers wishing to save their clients’ money. 

The annual charge that applies to both freehold and leasehold interests in land will be:

Property value                                                                                    Annual Charge

 £2 million to £5 million                                                                           £15,000

£5 million to £10 million                                                                        £35,000

£10 million to £20 million                                                                    £70,000

Over £20 million                                                                                  £140,000

There are reliefs that could reduce the tax.  For example if the property is owned for part of a year or the use of the property is changed so that it moves in or out of ARPT, the tax is paid on a proportionate part only. 

The reliefs that apply where no ARPT is payable include circumstances such as:

  • occupation of a dwelling by a third party (unconnected to the owner) on a commercial basis;
  • the dwelling being held for charitable purposes,
  • farmhouses if they are occupied by the farmer that farms the associated farmland and
  • occupation by an employee where the employee does not have an interest in the company of more than 5%.

The starting point of the value of a dwelling is the later of 1 April 2012, the date the interest in the dwelling was acquired and the date of entry on the Council Tax Valuation List if the dwelling is a new property or an existing building that has been altered so that it becomes a dwelling.

The mechanism for payment of ARPT is by filling in a form and submitting it to HMRC by 30 April each year.  The ARPT period lasts for one year and begins on 1 April. Like SDLT returns, if ARPT is payable or even if you are claiming full relief, if the form is not submitted within the stipulated timescale, there are penalties that the owner could be liable for.

It is inevitable that we may see some avoidance measures being devised by tax specialists that will seek to thwart the Government’s attempts at earning themselves an additional income from "rich, corporate" investors.   If you require further advice and assistance on ARPT or any other property tax issues, we will be pleased to put you in touch with specialist tax advisers.

For specific advice and information about ARPT and high value residential property please contact any of the lawyers in our Property Team.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.