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Lucia Perchard outlines the new property tax legislation that will be brought in by the UK Finance Act 2013, and what this means for the Channel Islands


LOCATION TAXATION


LUCIAPERCHARD IS VICE PRESIDENT AT BARCLAYS WEALTH ADVISORY IN JERSEY


THE 2012 UK BUDGET introduced a 15 per cent stamp duty land tax (SDLT) rate for the acquisition of UK residential properties worth more than GBP2 million by a ‘non-natural’ person (essentially companies). In addition, the Chancellor announced proposals for an annual residential property tax (ARPT) to be levied on residential properties worth more than GBP2 million owned by non-UK-resident non-natural persons, and an extension of the capital gains tax (CGT) regime for such properties sold by non-UK- resident non-natural persons. The draft CGT rules were published at the end of January and they have extended the new CGT rules to both UK and non-UK non-natural persons. It is now essential that trustees and company boards, together with tax advisors, settlors, beneficiaries and beneficial owners, review wealth-management structures that hold UK residential property to identify and understand the impact the new legislation will have. Structures will need to be carefully examined to ensure that they remain fit for purpose in the new taxation environment while continuing to preserve and enhance the value of the assets held.


ARPT


Although the threshold for properties subject to the new tax is GBP2 million, structures holding properties close to that level should also be reviewed if they have potential to increase in value and become subject to the ARPT. At a glance, the figures


show that the ARPT charge will depend on the value of the property as at April 2013. For property valued at between GBP2 million and GBP5 million, a GBP15,000 charge will apply. Above that, the rate increases in stages to a maximumof GBP140,000,


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for properties valued at GBP20 million or over. It is also worth bearing in mind that the charges are index-linked and will increase in line with the consumer price index. Also, a return will need to be completed, though this has yet to be issued. The thresholds are fixed, however, so fiscal drag will apply, bringing more properties into the ARPT charge over time. There are notable reliefs, in particular for commercial property, property development and income property rental businesses. HMRC has been clear that the reliefs will apply only where the conditions they outline are met. For example, where trustees rent a property to a relative of the settlor, even if a distant relative and at a commercial rent, the relief will not be available, so only those clearly rented to a third party would apply. These exemptions are positive news for the Channel Islands, as a considerable amount of property is held in structures in the islands for this purpose, and the relief means that these can continue to be held in their current form without adverse tax consequences.


Weighing up the options For property that is held for the enjoyment of non-resident and non-domiciled beneficiaries of a trust, the position requires more attention, and there may be several ways to ensure that individuals can continue to use the property as they had historically. Typically, a property in this scenario is held in an offshore company that is owned by an overlying offshore trust. This ensures that the asset can be enjoyed and inherited by multiple beneficiaries, caught as it is within the terms of the trust. A property held in this manner is now likely to be subject to the ARPT and indeed CGT of 28 per cent


APRIL 2013 49


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