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Article contributed by ACCA

New tax will focus on high value residential properties.

The Annual Residential Property Tax (ARPT) is a tax payable by a company, a partnership where one of the partners is a company or collective investment vehicle (such as a unit trust or an open investment company), on a high value residential property (a ‘dwelling’).

However, a company that owns property in its capacity as a trustee of a settlement is not included in ARPT although the beneficiary might be.

ARPT will start on 1 April 2013 and will be payable each year. It will apply to a property if it:

  • is a dwelling
  • is in the UK
  • was valued at £2m or more on 1 April 2012, or at acquisition if later
  • it is owned, completely or partly, by a company, a partnership where one of the partners is a company or a ‘collective investment vehicle’.

The amount of ARPT is worked out using a banding system based on the value of the property:

  • £2m to £5m: an annual tax charge of £15,000
  • £5m to £10m: an annual tax charge of £35,000
  • £10m to £20m: an annual tax charge of £70,000
  • £25m and over: an annual tax charge of £140,000.

ARPT applies to residential properties (‘dwellings’) that are physically located in the UK. If a dwelling is part of a residential or mixed-use property, APRT applies only to the residential part of the property.

Meaning of dwelling

A dwelling includes gardens and grounds and any building within them, unless that building is being used for a purpose covered by a relief. If a property consists of a number of self-contained flats, each flat will usually be valued separately.

If there is more than one dwelling in a property and they are owned by a company or person connected with the company, they are added together and looked at as a single dwelling where there is internal access between the two. Two dwellings in adjoining buildings with internal access between them are also treated as one dwelling for ARPT.

Where companies and individuals connected to the company own multiple interests in a dwelling, these will be added together for ARPT purposes.

Hotels, guest houses, boarding school accommodation, hospitals, student halls of residence, military accommodation, care homes and prisons are not dwellings, so don’t come under ARPT.

The business needs to self-assess the value of the property. Valuations must be on an open-market between a willing buyer and a willing seller. The value must be a specific price and the valuation at 1 April 2012 will decide which ARPT band the property will fall into for five years. This could change if the property is developed or falls outside of ARPT completely, or comes back into the charge again (for example, it becomes a non-residential property and then residential again).

Reliefs

A dwelling might get relief from ARPT if it is: 

  • let to a third party on a commercial basis and is not, at any time, occupied (or available for occupation) by anyone connected with the owner
  • held for charitable purposes
  • open to the public for at least 28 days per annum
  • held as stock of a property trading business and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner
  • for the use of employees of a company, for the company’s commercial business and where the employee does not have an interest (directly or indirectly) in the company of more than 5%. The employee’s duties must not include services for any present or future occupation of the property by someone connected with the company
  • farmhouses, if they are occupied by the farmer who farms the associated farmland full time and the farmhouse is of an appropriate character.

Also, a dwelling held as part of a commercial property development business can get relief but it must meet the following conditions:

  • the property is bought or acquired as part of a property development business
  • the property was purchased with the intention to re-develop and sell it on
  • the property is not at any time occupied by anyone connected with the owner.

If part of a property is occupied as a dwelling in connection with running the property as a commercial business open to the public, the whole property is treated as one dwelling and any relief will apply to the whole property.

Capital Gains Tax will apply to disposal of high value UK residential property by a non-natural person from 6 April 2013. The rate of the CGT charge on these disposals will be 28%. Where the residential property was purchased before 6 April 2013 but disposed of after that date, the charge will apply only to that part of the gain that is accrued on or after 6 April 2013. The balance of any gain (ie the gain accrued before 6 April 2013) will continue to be treated as at present, ie under corporation tax rules for a UK company.