Technical updates - Published 18th February 2015

Briefing: ATED and the Autumn Statement 2014

By 1 April 2016, an additional 36,000 taxpayers will fall under ATED, the government’s tax on residential property that is owned through corporate structures such as companies.

The annual tax on enveloped dwellings, was originally introduced to target residential property worth over £2 million, but the threshold has been falling and by 1 April 2016 it will apply to properties worth over £500,000.

The good news is that, in order to cope with the increased workload on its own compliance department, the government has had to simplify the regime’s administration.

From 1 April 2015, properties that fall under ATED but are exempt from paying any tax, will have simplified reporting requirements. The result is something called a relief declaration return. It will be less detailed than the existing ATED return and need only be filed once each year, provided additional properties falling into ATED in the year also qualify for the same relief.

HMRC has also confirmed that it is developing a more robust online filing and payment system. We expect that this should make the compliance process easier. The current system has a few weaknesses, such as the inability to save the return prior to submission and no acknowledgment that the return or payment has been received.

This simplification should definitely reduce the compliance burden but it has not gone as far as some people would have liked. Many businesses wanted there to be an exemption status that would have meant no annual filing and would have covered all reliefs. As it is, the current proposal means that if one property in the company qualifies for property trader relief, one for property developer relief and one for property rental relief, then three annual returns must be filed.

Rise in high-end property charges
A development that will concern many owners is the announcement that, from 1 April 2015, the annual ATED charge will rise by 50% above inflation for residential properties worth more than £2 million. The annual charge on properties valued between £2 and £5 million will rise from £15,400 to £23,350. And for properties worth over £20 million the annual charge goes from £143,750 to £218,200.

Coupled with the increase in the highest rate of SDLT from 7% to 12%, this spells bad news for taxpayers owning or buying high-end residential property.

These increases may not be enough to persuade people to de-envelope their property, but transferring into such a structure will certainly become far less desirable. On the other hand, the new 12% SDLT charge, coupled with a possible mansion tax, could mean that high-value UK residential property will be highly taxed regardless of how it is held. Overall, the ATED regime may be no worse than any alternative.

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