Non-Natural Persons
In the middle of last year one concern was the potential width of the definition of a non-natural. In particular there was a suggestion trusts might be included, which would have made asset protection and inter-generation planning even more difficult than it had been. In the event, the Government decided to restrict the persons affected to companies (whether UK incorporated or not), partnerships with a corporate member and collec-tive investment schemes.
This leaves trusts and individuals unaffected, although each individual case must inevitably involve a discussion around the Inheritance Tax risks set against the possible cost of avoiding it.
Other Changes
The new annual charge began its life called “Annual Residential Property Tax” (ARPT), but by the time this year’s Finance Bill was published it had become the “Annual Tax on Enveloped Dwell-ings” (ATED). This rather clumsy new name possibly ref lects political concerns this new tax might be recog-nised for what it is: a “mansion tax” that can be rolled out beyond its present targets whenever it is felt the time is right.
\- Several reliefs were introduced but the two most relevant being:
\- Property developers and dealers in real estate - basically cally anyone holding property assets as stock in trade were given a much more user-friendly relief from ATED than the one that had been applied to the 15% rate of Stamp Duty Land Tax. Even when buying through a company such traders are due to revert to a 7% maximum rate of SDLT this summer.
-buy-to-let businesses were taken out of the new charges, so a company can own residential property so long as it is occupied by third parties on arm’s length terms without giving rise to concerns about the 15% SDLT rate, the charge of ATED, or the possibility of CGT being payable on disposal.
Although very narrow in their application, there are also reliefs for dwellings held for charitable purposes as well as houses occupied by working farmers and employees and partners who hold minority interests in related businesses. Properties run as businesses (for example, stately homes) are also relieved.
With regards to CGT, a form of rebasing will apply so that it is only the gain that has accrued since 6 April 2013 that can be taxed under the new regime.
While watered down in some respects, this new tax regime (particularly the legislation for ATED) retains a number of difficult provisions because of the perceived need to counter tax avoidance. It still has to be navi-gated with one eye on the Inheritance Tax risks involved and the planning necessary to counter this.
On the other hand, focusing the regime on its initial targets - ostensibly the holding o residential real estate through companies where ordinarily it would be in the hands of owner occupiers - has allowed the UK real estate market to breathe a collective sigh of relief.
