The Chancellor of the Exchequer announced the 2012 Budget on 21
March. While aspects of the Budget are clearly favourable to UK
business, particularly the reduction in the main rate of
corporation tax to 24 per cent from 1 April 2012 with further
reductions in the rate to 22 per cent to come by April 2014, the
specific measures introduced in relation to real estate are less
positive and largely anti-avoidance in nature. As widely predicted,
anti-avoidance measures were heavily focussed on Stamp Duty Land
Tax (SDLT) planning.
Stamp Duty Land Tax
The principal SDLT announcements were in relation to high value
residential property. First, a new seven per cent rate of SDLT was
announced (with immediate effect from 22 March), which will apply
to the purchase of residential properties where the consideration
is more than £2m. However, transitional provisions should,
broadly speaking, ensure that the former five per cent rate will
apply where a property is sold pursuant to a sale contract entered
into before that date. Secondly, in an attempt to target the
avoidance of SDLT through the transfer of shares in offshore
property holding companies, a significantly higher rate of 15 per
cent has been introduced with immediate effect for residential
properties costing over £2m purchased through a
"non-natural person". This would principally target
companies but will also include collective investment schemes such
as unit trusts and any partnerships in which a non-natural person
is a partner. In addition, it is proposed that residential
properties held by non-natural persons will be subject to an annual
charge with effect from April 2013, subject to consultation. The
proposed charge is staggered, so that residential properties with a
value of £2m to £5m held through such vehicles will be
subject to an annual charge of £15,000 with the charge rising
progressively to £140,000 per year where the value of the
property is greater than £20m.
Capital Gains Tax
In a further attack on holding residential property through
non-resident companies, the Government has announced its intention
to consult on the introduction of a capital gains tax charge on the
disposal of such properties. Subject to the outcome of the
consultation, this measure may be introduced in the Finance Bill
2013. The Budget announcement does not go into significant detail
regarding the potential charge. In particular, there is no mention
of a value threshold, but the Budget announcements do refer to
gains on sales of shares or interests, which suggests that the
charging provisions may be wide.
Aside from SDLT, there were some notable announcements regarding
capital allowances. The Government has announced the addition of a
series of new enterprise zones and trading companies investing in
plant or machinery for use within these zones will generally
benefit from 100 per cent enhanced capital allowances. In addition,
as previously announced, it is confirmed that the Finance Bill 2012
will include provisions to reduce the current rate of plant and
machinery capital allowances to 18 per cent for main pool
expenditure and eight per cent for special pool expenditure from 1
April 2012, and to tighten up the rules regarding the provisions
for capital allowances made on a sale and purchase of a
The Chancellor also announced certain measures to address VAT
anomalies. In particular, with effect from October 2012 supplies of
self-storage will be subject to VAT at the standard rate,
regardless of whether the operator has opted to tax in respect of
the property. This will affect all such businesses which provide
their customers with a discrete area of land and which had
previously managed to stay outside the scope of VAT by making a
supply of land with no option to tax.
Disappointingly, the Budget failed to announce the consultation
into mortgage real estate investment trusts ("M-REITs")
which had been widely predicted. Mortgage REITs, which are common
in the US, would provide an alternative to existing bank mortgage
funding and could potentially free up bank lending capacity. It is
to be hoped that continued representations on this issue will keep
it on the Government's agenda going forwards.
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The Government is consulting on how to change two aspects of the partnership tax rules in order to prevent tax loss arising from disguised employment relationships through limited liability partnerships and from certain arrangements involving the allocation of profits and losses among partnership members.
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