Finance Act 2012 introduced, for high value properties bought by companies:
- An annual tax on enveloped dwellings (ATED);
- A 15% stamp duty land tax (SDLT) charge on their purchase; and
- Capital gains tax on their sale (even if the selling company was foreign).
This applied not only to UK companies but also to foreign companies, a partnership with a company member or a collective investment scheme (together, non-natural persons).
Reduced threshold for tax charges
The threshold for these three taxes was originally £2 million, this threshold was significantly reduced, to £500,000 by the Finance Act 2014.
New reliefs from tax charges
There have always been exclusions from these three taxes for certain commercial operations such as property development or corporate letting businesses. However there remained concern that they caught a number of transactions in which residential property was acquired for genuine commercial reasons. The Finance Bill 2016 (2016 Bill) will rectify this by introducing some welcome reliefs.
Non-natural persons will be able to claim relief from the three tax charges where property is acquired to:
- Be converted into, or be demolished to prepare the land for, the purposes of a trade carried on a commercial basis and with a view to profit.
A relief was already available where living accommodation was provided to an employee of a trade, but as property rental businesses are often not classed as a trade, the relief was not available to those property acquisitions.
The 2016 Bill will amend the definition of "relievable trade" to "relievable business" to mean "a trade or property rental business". Such a relievable business must be carried on a commercial basis and with a view to profit. The current three year period in which relief can be withdrawn will also apply to these acquisitions.
Where a flat is acquired for:
- A caretaker employed by a tenants' management company.
- There are tenants of two or more other flats who also reside within the same premises.
- The tenants are members of the same company.
- The company owns (or intends to own) the freehold of the premises.
Then tax relief will apply. Property letting businesses are excluded, however.
The relief is withdrawn if the flat is held otherwise than for the purposes of providing accommodation to a caretaker within three years.
A relief will apply if a dwelling is acquired under a regulated home reversion plan as described in the Regulated Activities Order 2001 and where the purchaser must be a person authorised under the Financial Services and Markets Act 2000 to enter into regulated home reversion plans as a plan provider.
The relief is withdrawn if within three years a non-qualifying individual (broadly, an owner of the company or their relatives) occupies the property or if the dwelling is not sold when the last individual living in the property dies or goes into long term care.
Where a dwelling is acquired "exclusively" for conversion into non-residential use or where the dwelling is demolished, relief from the higher rate is given if it is for a relievable trade, rather than the wider definition of a relievable business. Relief is withdrawn if within three years neither the conversion nor demolition has begun.