6 August 2012

The Government has set out its objective of ensuring that, in its view, high value residential property transactions are taxed fairly. The result is new tax legislation for UK residential properties with a value in excess of £2,000,000.


The Government believes that currently high value residential properties are often acquired and held by non-natural persons to benefit from lower levels of certain UK taxes. In light of this, an increased rate of Stamp Duty Land Tax (“SDLT”) was introduced with effect from 21 March 2012 and two additional tax charges are set to be introduced in April 2013.
The following tax changes have been/are proposed to be introduced;

1. From 21 March 2012 a new 15% rate of SDLT applies to acquisitions, by non-natural persons, of UK residential properties with a value in excess of £2,000,000.
2. From 1 April 2013 it is proposed that non-natural persons will be subject to an annual tax charge in respect of UK residential properties, with a value in excess of £2,000,000.
3. From 6 April 2013, UK residential properties which are disposed of for proceeds in excess of £2,000,000, that result in a gain, by non UK resident non-natural persons, will be subject to Capital Gains Tax (“CGT”).

We summarise below the key points of each.

15% SDLT

  • The new 15% SDLT rate was effective from 21 March 2012.
  • As outlined above, if a non-natural person purchases a UK residential property with a value in excess of £2,000,000, they will now be liable to SDLT at a rate of 15%.
  • For the purpose of this SDLT charge, a non-natural person is broadly a company, corporate entity, partnership with a corporate member or a collective investment vehicle. Whether or not UK resident.
  • Generally, trusts (other than bare trusts) and charities are excluded.
  • There is an exclusion for property development companies but this contains strict conditions, all of which must be met. Generally, these are that the company is a bona fide business which has been trading for at least 2 years and has purchased the property with the intention of re-development and re-sale.

Annual charge

  • The proposed new annual charge is to take effect from 1 April 2013.
  • The annual charge will apply to any non-natural person who owns a UK residential property with a value in excess of £2,000,000.
  • For the purpose of this annual charge, a non-natural person is broadly a company, other corporate entity, partnership with a corporate member or a collective investment vehicle. Whether or not UK resident.
  • Like with the new 15% SDLT, there are likely to be exclusions for certain trusts, charities and possibly some property development companies (subject to certain criteria).

The proposed annual charges are as follows;

Property value (£) Proposed annual charge (£)
2,000,001 – 5,000,000 15,000
5,000,001 – 10,000,000 35,000
10,000,001 – 20,000,000 70,000
20,000,001+ 140,000

It is expected that the charge will rise each year in accordance with the Consumer Price Index.

  • The valuation of the property will be self-assessed by the person liable. The initial value will be that as at 1 April 2012 (or later if not already owned) and will be subject to a revaluation every 5 years.
  • A separate annual return will be required for each UK residential property held (that exceeds the value outlined). One single payment however can be made.
  • If both the freehold and the leasehold of the property are held by non-natural persons, and the value of each interest exceeds £2,000,000, both entities will be liable to the annual charge.
  • Currently, strict payment and filing deadlines have been proposed as regards to the return and payment of the annual charge.

CGT consequences

  • The proposed extension of CGT to gains on the disposal of UK residential properties sold for more than £2,000,000, by non-resident non natural persons, is to take effect from 6 April 2013.
  • By way of background, currently only UK resident individuals are subject to CGT on the disposal of assets at a gain. UK resident companies are subject to Corporation Tax on any chargeable gains they realise.
  • The proposed CGT rate that will apply has not yet been established.
  • The CGT charge will apply to non UK resident non-natural persons only. Non UK resident individuals will not be affected.
  • For the purposes of this extension to CGT, a non-natural person is;
    – a company or other corporate entity,
    – trust structures (excluding bare trusts), including trusts where the trustees are individuals rather than companies.
    – collective investment vehicles.
    – personal representatives.
    – clubs and associates.
    – existing entities in other jurisdictions which hold UK residential property.
  • Any losses realised in respect of UK residential properties will be ‘ring-fenced’ and thus only available to offset again current or future gains realised from UK residential property.
  • There will not be an automatic increase in the base cost of underlying properties to bring this up to the value as at 6 April 2013. Therefore existing inherent gains not currently exposed to CGT may become so on a disposal of a property on or after 6 April 2013. This makes the new legislative effectively retroactive.


Two of the three tax changes have not yet been formally introduced. These tax changes could result is a much higher tax burden for persons with an interest in high value UK residential property.

Owners of high value UK residential property should seek advice well ahead of April 2013 to plan for the incoming tax changes. Factors that will require consideration are the personal circumstances of the ultimate owner(s) of a property, the need for confidentiality, Inheritance Tax exposure, residence and domicile matters, inherent capital gains and SDLT.

Contact Us

For further information on the tax changes to high value UK residential property, or property tax planning in general, please contact us on 01788 539000.

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Magma is a leading firm of Chartered Accountants and Chartered Tax Advisers, providing a wide range of professional advisory services to owner managed businesses and private individuals. Magma thrives on its work with entrepreneurial businesses and their people. Magma works closely with its clients, delivering proactive and innovative advice. Our focus is on building long term relationships with our clients to help them and their businesses succeed, reduce taxation and create, increase and protect wealth. Magma offers a breadth of technical expertise and specialist advisers across six integrated service areas: Audit and Assurance, Business Services, Corporate Finance, Corporate and Business Tax, Private Client Tax and Wealth Management.

This document has been prepared as a general summary. It has been written for information purposes, should not be relied upon and is not a substitute for professional advice which should be sought. This document does not constitute taxation, financial planning or investment advice. Neither Magma Chartered Accountants or any of its employees accept any responsibility for loss or damage incurred as a result of acting or refraining from acting upon anything contained in or omitted from this document. Magma Chartered Accountants is the trading name of Magma Audit LLP, a limited liability partnership (Registered in England No. OC370086). Magma Audit LLP is a subsidiary of Magma Partners LLP (Registered in England No. OC370051). The registered office of both LLPs is: Bloxam Court, Corporation Street, Rugby, CV21 2DU. Registered to carry on audit work and regulated for a range of investment business activities by the Institute of Chartered Accountants in England and Wales. Magma Partners LLP is registered with the Chartered Institute of Taxation as a firm of Chartered Tax Advisers. A list of members is available on request.