Annual Tax on Enveloped Dwellings (ATED) and Capital Gains Tax (CGT) for non-UK residents


Filed Under: Investing in the UK

A number of changes were announced in the 2014 Budget in relation to the taxation of UK residential property. The scope of ATED has been significantly widened with more UK residential properties likely to come within the regime and UK CGT will, for the first time, apply to non-UK residents selling UK residential property.

Currently, ATED applies to UK residential property worth more than £2 million and owned by a ‘Non-Natural Person’ (NNP), typically a corporate entity.

This threshold will be reduced to £1 million from 1 April 2015 and further reduced to £500,000 from 1 April 2016. This change is expected to catch many more properties held in such corporate structures, resulting in a tax charge for the entity, where a relief is not available, and additional annual filing requirements.

In addition to the ATED changes, purchases of UK residential property over £500,000 by NNPs will now be subject to 15% stamp duty land tax, again where an applicable relief is not available.

Traditionally, ownership of a UK residential property via an offshore corporate structure was favoured because of protection from UK inheritance tax for non-UK domiciled individuals. With the widened scope of the ATED, corporate ownership should be considered with caution.

Historically, non-UK residents have not been subject to UK CGT, irrespective of the fact that the asset concerned may be situated in the UK, e.g. a UK residential property. The Government considered that this perceived imbalance, compared to how UK residents are taxed, should be addressed and the 2014 Budget confirmed that non-UK residents selling UK residential property would be subject to UK CGT from 6 April 2015.

The CGT charge will apply to non-resident individuals, trusts and companies, which is different to ATED which only applies to corporate structures (wherever situated).

The Government has suggested that the new CGT will apply only to capital gains arising from April 2015 which means that the base cost of properties should be ‘uplifted’ at that date and therefore valuations are likely to be required for April 2015. Non-UK residents considering selling a UK residential property should aim to conclude the transaction before 6 April 2015 to ensure the new CGT charge does not apply. Transitional rules may be introduced where exchange has occurred but the sale has not been completed before 6 April 2015, but this should not be relied upon.

The latest announcements add to the significant changes to the taxation of UK residential property over the last two years. Existing structures should be reviewed and, going forward, careful consideration will need to be given to the appropriate structure to hold UK residential property, with due regard to ATED, new CGT and UK inheritance tax.

We have two publications on ATED and CGT which cover these topics in more detail, please email us, details below, if you would like to receive a copy.