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Finance Bill - De-enveloping – the race is on!

11 December 2012

Sean Randall, real estate tax director at Deloitte, comments on the impact of the draft legislation in the Finance Bill  that, once enacted, will introduce a new tax on ownership of residential property worth more than £2 million by companies and other ‘non-natural persons’, the Annual Residential Property Tax:

“The fact that the Government has decided to press ahead with this new tax is no surprise. They were committed to the concept from the beginning. It is designed to deter high-value residential properties being ‘enveloped’ within a company so as to prevent an opportunity for stamp duty land tax (SDLT) avoidance on future sales. It is also designed to encourage individuals to ‘de-envelope’ such property from existing companies.

“What’s certain is that trust companies, lawyers and tax advisers operating in this space will all be very busy in the run up to April advising their clients which structure is the most appropriate for them taking into account all taxes: SDLT, inheritance tax, capital gains tax and ARPT.”

Responding to the draft legislation that, once enacted, will amend the existing rules that charge stamp duty land tax at the super rate of 15% on the purchase of residential property worth more than £2 million by companies and others.

Sean Randall commented:

“The Government has listened to industry representations on ARPT and its cousin, the super rate of 15%, which acts as a further disincentive to enveloping, by ensuring they only apply, as intended, to individual owner-occupiers. A large number of exclusions from the super rate will be introduced for various businesses, aligning it to the scope of ARPT. Controversially, however, there is no indication, as yet, that the exclusions will apply before the summer of next year. Consequently, property companies, pension funds, landed estates and new developers appear likely to continue to have to pay SDLT at the super rate despite no tax avoidance. This appears unfair and I hope the Government recognise this by back-dating the exclusions from March this year.”

Ends

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