2. 'corporate envelopes'. However, a tax avoidance motive is not needed to be caught by these new rules,
which apply to 'non-natural' persons including companies. Both non-UK and UK resident companies are
caught by the new rules. The rules apply where the company holds residential property worth more than
£2m. A residential property is a building or part of a building which is used or suitable for use as a single
dwelling or is in the process of being constructed or adapted for such use. For this purpose, each dwelling is
valued separately. So, for example, the caretaker's flat is worth less than £2m so will not be subject to the
new rules.
The new rules do not apply to a company if the company is holding the property as nominee for an individual.
You should therefore check if the company holds the property outright or as nominee for the individual
investors. Presuming it is not a nominee, all is not lost. Exclusions apply where the property is held as part of
a genuine business. This includes where the property is purchased as part of a property development
business, a property trading business or a property rental business.
However, the exclusions do not apply where the property is being let to a connected person. This includes a
company's shareholder and their spouse, siblings, parents and children. The shareholder's brother is a
connected person. The apartment let to the brother will be chargeable under the new rules even though the
brother pays a commercial rate of rent. The nephew is not a connected person. The nephew's apartment
should therefore be excluded from the new rules, along with the other let properties. The apartments being
sold should not be within the new rules provided they are not sold to a connected person. Excluded
properties will still need to be declared to HMRC.
The penthouse and the brother's apartment are within the scope of the new rules and do not fall under any of
the exclusions. This means that the company must pay an annual charge of £15,000 in relation to each
property. The ARPT accrues on a daily basis so if, for example, the penthouse is let to a third party and the
letting exemption applies, the charge due will be reduced on a pro-rata basis. It also means that CGT will be
due on any gains on disposal of these properties post April 2013. Previously, these gains were not subject to
CGT. Rebasing is available so that gains accruing to April 2013 are not subject to the new CGT charge.
Principal private residence relief is not available as the properties are held by a company. Where the
shareholders dispose of their shares in the company, there may be a UK CGT charge because the company
holds high value residential property in the UK.
The ARPT and CGT charges apply from April 2013. There is still time to restructure so that the new rules do
not apply. One possibility is for the current shareholders to hold the property through a partnership instead of
a company. Depending on how the company is financed there may be an SDLT cost to any restructuring.
Where accommodation is provided to an individual or a member of his family by virtue of his employment or
directorship the notional benefit of use of the accommodation may be subject to UK income tax. As the
directors are not resident in the UK, they should not be taxable on any benefits provided they do not
undertake any duties in the UK. In any event, there is no taxable benefit where full market rent is paid. I
understand that the caretaker is employed by the company. He is provided with accommodation by his
employer. This should not be a taxable benefit because it is provided for the better performance of his
employment duties and it is customary to provide this kind of living accommodation.
There are many residential properties worth more than £2m in London. It is not uncommon for foreign
investors to hold these properties in companies for non-tax reasons. As a result, consideration must be given
to whether the new charges on UK property apply.
In this case, the apartments for sale and the apartments let to third parties and the shareholder's nephew are
excluded from the new charges. These properties will still need to be disclosed to HMRC. The apartment let
to the shareholder's brother and the penthouse are caught by the new ARPT and CGT charges.
Consideration should be given to restructuring these property holdings before April 2013 with the appropriate
tax advice.
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3. 'Ask an expert' provides expert answers to your tax queries. If you would like a second opinion on a tax
issue, please contact the editor at paul.stainforth@lexisnexis.co.uk and we will endeavour to commission
an answer for you. All questions will be anonymised.
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For further tax guidance, see www.taxjournal.com.
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