Capital gains tax charge for companies selling residential property will apply to UK companies, says Government

This new capital gains tax (CGT) charge was announced in last year's budget but it was proposed that it would apply only to non-UK resident non-natural persons (NNPs). Following consultation, the Government has decided that, "for consistency", the new CGT charge will also apply to NNPs that are resident in the UK. It is likely that the rule, as previously drafted would have been in breach of the EU principle of non-discrimination by treating UK companies and non-UK companies differently.

The new CGT charge, along with the new annual residential property tax (ARPT) is one of several measures, announced in March last year, aimed at ensuring people who purchase high value residential properties in the name of a company, partnership or other 'non-natural person' pay their "fair share" of tax.

The charge will apply to gains on disposals on or after 6 April 2013. However increases in the value of property before 6 April 2013 will not be subject to CGT under this measure.  Corporation tax will apply for UK companies to the part of any gain built up before 6 April 2013 so that the gain can be reduced by the Indexation allowance, which counteracts the effect of inflation.

The new charge should bring in additional revenues to the Treasury as CGT, which is 28% for higher rate taxpayers, is higher than the highest rate of corporation tax, which is 23% from April 2013. However, the change adds an unwelcome layer of complexity.

Tax expert Ray McCann of Pinsent Masons, the law firm behind Out-Law.com said: "At a time where there is pressure on Government to simplify the tax system, it seems odd to revise the basis upon which UK companies are taxed on property holdings, in circumstances where even the most optimistic estimates of the tax likely to be raised is modest."

McCann also said that UK companies which do hold residential property, for instance for the benefit of visiting staff, were never intended to be the target of the measure, yet they may well be the only entities paying the tax.

Newly published draft legislation also provides further detail about the ARPT. This legislation includes some additional clauses promised in December and clarification of the reliefs intended to exempt genuine commercial activities from the charge.