25 January 2013 by Sonal Ghelani

Annual Residential Property Tax 1: Mansion Tax 0

The new Finance Act 2013 contains proposals which would directly affect the taxation of high value residential properties. Following on from our blog of 28 December 2012, the Annual Residential Property Tax (ARPT) is due to start on 1 April 2013 and will apply to dwellings owned on or acquired after that date.

ARPT should not be confused with the Mansion Tax which was hotly debated last year where, under the Osborne-Clegg proposals, there would have been two or three new Council Tax bands on homes worth over £10 million. This proposal has been shelved, for now.

Instead, ARPT is a tax payable by companies and certain non-natural persons (such as collective investment schemes and partnerships with corporate members) on properties valued at over £2 million.

ARPT will be worked out using a banding system. It will be based on the market value of the property as at 1 April 2012 (known as the base date if the property was owned on that date) or any later date of acquisition with provisions to review every 5 years. If HMRC challenge a valuation and find that it is wrong, the person responsible for paying ARPT may have to pay penalties as well as the increased ARPT payable, plus interest for late payment.
The rate bands are as follows:

Value of property Annual charge for 2013-14

£2 million – £5 million £15,000
£5 million – £10 million £35,000
£10 million – £20 million £70,000
Over £20 million £140,000

Transitional arrangements will be in place for the first year of ARPT, which is the full 12-month period beginning 1 April 2013, when the ARPT return will be due by 1 October 2013 and payment will be due by 31 October 2013.

However, from 1 April 2014, an ARPT return must be completed and returned to HMRC with payment by 30 April in each ARPT period (an ARPT period lasts for one year and begins on 1 April). Again, penalties and interest will be charged for late payments and filing.

There will be certain reliefs to ARPT which include using the property for a rental business, or where the property is acquired for redevelopment and resale or held for a charitable purpose. Working farmhouses will also be exempt.

Clearly, the aim of the tax is to dissuade individuals from holding properties for their personal use in corporate wrappers also known as ‘enveloping’ for tax purposes.

If you would like any further information, please contact Sonal

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