In the 2012 Budget, the Government announced new taxes applying to ‘high value’ UK residential property owned by ‘Non-Natural Persons’ (‘NNPs’), typically corporate entities.
Currently, ATED applies to UK residential property worth more than £2m and owned by an NNP. The 2014 Budget has significantly widened the application of the ATED, extending the tax regime to UK residential property worth more than £500,000. This is likely to bring more properties within the scope of the annual charge.
2014 Budget announcements
With effect from 20 March 2014, the 15% rate of Stamp Duty Land Tax (‘SDLT’) applies to purchases by NNPs of UK residential property over £500,000.
From 1 April 2015, the starting threshold for ATED to apply will be reduced from £2m to £1m. This will be further reduced from 1 April 2016 to £500,000. The annual charges for properties within these new bandings will be £7,000 for properties valued over £1m and £3,500 for properties valued over £500,000 (although both are subject to increases based on the Consumer Price Index - ‘CPI’).
In addition, the 2014 Budget confirmed that the current ATED charges are increasing in line with CPI and these new charges will apply to those making ATED payments for 2014/15, due by 30 April 2014. The new ATED charges are as follows:
Property value Annual charge (2014/15)
Over £2m and up to £5m £15,400
Over £5m and up to £10m £35,900
Over £10m and up to £20m £71,850
Over £20m £143,750
There are a number of existing reliefs and exemptions from the 15% SDLT and ATED, and these reliefs and exemptions will also apply to properties coming into the charge because of the lower bandings. The reliefs generally apply to genuine businesses carrying out commercial activity and these are summarised overleaf.
Finally, separate to the changes to the ATED regime announced in the 2014 Budget, on 28 March 2014 the Government published the long awaited consultation document on extending Capital Gains Tax (‘CGT’) for non-resident owners of UK residential property. The new CGT regime will apply from April 2015 and will affect non-resident individuals, trusts and companies. Further details of the proposals contained in the consultation document are outlined in our separate briefing note which can be accessed here
The normal due date for filing an ATED return and making the tax payment is 30 April following the start of the ATED period. For properties coming within the charge on 1 April 2015 (i.e. those properties valued over £1m but less than £2m as at 1 April 2012) the deadline to file the ATED return is 1 October 2015 and any tax must be paid by 31 October 2015. Thereafter, the normal 30 April deadlines will apply.
If you are now purchasing a UK residential property over £500,000 through a corporate entity, it is important to consider the application of the higher 15% SDLT charge and whether a relief is available (see overleaf).
Those UK residential properties owned through corporate envelopes, and not currently within the ATED regime, will need to review whether the lower thresholds from 1 April 2015 and 1 April 2016 will bring them into the charge. The valuation date to determine the relevant banding is 1 April 2012, or if later the date of acquisition. Therefore, valuations as at 1 April 2012 should be commissioned as soon as possible to confirm the correct banding and when the charge will first apply. Properties must be re-valued every five years; therefore, the first revaluation on 1 April 2017 will form the basis of the tax charge for 2018/19.
EXAMPLE: A property owned by a company worth £750,000 at 1 April 2012 will come within the ATED for 2016/17, with the ATED return and tax due by 30 April 2016. The £750,000 valuation as at 1 April 2012 will be used until 2017/18 and the property will need to be re-valued at 1 April 2017 to determine the correct banding for 2018/19 onwards.
Reliefs and exemptions
There are various reliefs and exemptions from ATED but these are not automatically given so an ATED return must be filed to claim a relief.
- Properties held by landlords who are not connected to the tenant and who charge a commercial rent. This relief can also apply if the property was previously commercially rented but is now being prepared for sale or demolition.
- Properties open to the public with access to the interior for at least 28 days per year, on a commercial basis, as a venue or to provide accommodation or other services, e.g. stately homes.
- Properties held for development and resale.
- Properties held by a ‘property trader’ and held as dealing stock.
- Property held by a financial institution that involves the lending of money, and acquires a property in connection with its lending activities, e.g. equity release schemes.
- Properties held to provide employee accommodation, where the employee has less than a 10% interest in the company, e.g. homes for key executives working in the UK.
- Farmhouses occupied by a working farmer for the purposes of farming the connected land.
- Properties held by a registered provider of social housing.
- Properties held by charities and used for charitable purposes.
- Properties held by public bodies and bodies established for national purposes.
- Properties conditionally exempt from inheritance tax.
How Blick Rothenberg can help
We have extensive experience in advising on all aspects of property tax, including the new ATED rules and related transactions, with many clients already having been assisted.
Specifically, we can assist you by providing:
- Advice to restructure existing UK residential property ownership.
- Advice regarding the appropriate structure for the purchase of new UK residential property.
- Completion of ATED returns.