News & Insights

Annual residential property tax article

Will you be affected by the new annual residential property tax to be levied on corporate vehicles that own residential property through a company, partnership or collective investment scheme?

From 1st April 2013 the annual residential property tax will be applied to all companies, partnerships and collective investment schemes (such as unit trusts) holding residential property valued at over £2 million. For properties with a taxable value:

  • between £2million and £5million the annual charge will be £15,000;
  • between £5 million and £10 million it will be £35,000; and
  • thereafter the charge doubles with each £10million band.

The new tax is aimed at dissuading people from holding residential property for personal use in corporate wrappers. The Treasury wants to stop people from using companies, partnerships and certain types of collective investment scheme (such as unit trusts) to avoid stamp duty land tax. In the past some individuals have set up corporate entities to buy a property for their personal use. A big advantage of owning the property through a company is that when the company comes to sell, it can sell the shares in the company and the buyer will only pay 0.5% in stamp duty as opposed to 7% stamp duty land tax if the property is sold outside of the company wrapper.

Fortunately reliefs are available for genuine businesses holding property in corporate wrappers. For example, where a property is owned by a company:

  • running a property rental business;
  • whose business is property development; or
  • where a farmer or a business holds property with the intention of making it available to be used by employees as living accommodation

the annual tax charge is applied on a proportionate basis. For example, if a holiday property is available for short lets for 11 months of the year, but is used by the owner for one month in every year then 11/12ths of the annual charge will be relieved.

If you would like to know more about the charge and whether it could apply to you then either Sarah Wray or Philippa Roles would be pleased to speak to you.