The Government has recently made a number of important announcements with regard to the taxation of residential property in the United Kingdom.Nick Barnes, Head of Research
The Government has recently made a number of important announcements with regard to the taxation of residential property in the United Kingdom. We summarise below the key changes regarding the ATED and what the implications are for anyone either currently owning or thinking of buying UK residential property.
ATED is a tax payable on the ownership of high value residential property held via certain non-natural persons which came into effect from 1 April 2013. Changes to both the thresholds (reduction) and the tax rates (increase) have been made during 2014, the most recent being announced in the Autumn Statement.
Currently, if you own a residential property in the UK worth more than £2m you will need to complete an ATED Tax Return for your property if the following apply:
A company that owns property in its capacity as a trustee of a settlement is not included in ATED. If a company holds property as a trustee of a bare trust, it is the person who beneficially owns the property who may be liable for ATED.
If a property consists of a number of self-contained flats, each flat will usually be valued separately. If there is more than one dwelling in a property and they are owned by a company or person connected with the company, they are added together and regarded as a single dwelling where there is internal access between the two. Two dwellings in adjoining buildings with internal access between them are also treated as one dwelling for ATED purposes.
There are a number of circumstances in which full relief from ATED can be sought. In particular, residential property used in rental and property development businesses are not subject to the charge - but you can only claim them if you complete and send in a return. There are also a number of exemptions from the tax which mean you may not have to file a return. The amount of ATED is calculated using a banding system based on the value of the property as follows:
|Value of interest||
Annual chargeable amount
1st April 2014 - 31st March 2015
|More than £2 million but not more than £5 million||£15,400|
|More than £5 million but not more than £10 million||£35,900|
|More than £10 million but not more than £20 million||£71,850|
|More than £20 million||£143,750|
The annual chargeable amounts for ATED are increased each year in line with the Consumer Prices Index (CPI). The property bands are set for a period of five years. This could change if the property is developed or falls outside of ATED completely, or moves back in again (for example, it becomes a non-residential property and then residential again).
The basis for calculating ATED for the first five years beginning 1 April 2013 is the value of the property as at 1 April 2012 or when it was bought or acquired, if later than 1 April. All properties liable for ATED will need to be revalued again five years later, i.e. 1 April 2017, to cover the ATED returns for the next five year period starting on 1 April 2018.
You need to self assess the value of the property or use a professional valuer and the valuation needs to be reported on the ATED return. Valuations must be on an open-market "willing buyer, willing seller" basis. If HMRC challenges a valuation and finds that it is wrong, the person responsible for paying ATED may have to pay penalties as well as the increased ATED payable, plus interest for late payment.
Where property is chargeable in the ATED regime, disposals are subject to a special capital gains tax charge of 28% and this will continue and take priority over the general non-resident tax charge being introduced.
The 2014 Budget announced that the following new tax bands will be introduced over the next two years for ATED liable properties:
Annual chargeable amount
1st April 2015 - 31st March 2016
|More than £500,000 but not more than £1m||£3,500||1st April 2016|
|More than £1m but not more than £2m||£7,000||1st April 2015|
What are the potential implications for you?
The policy of taxation of residential property held within corporate wrappers is now firmly established and it will become more expensive to hold property this way as time goes on. Owners will have to decide whether the justification for owning residential property via a corporate structure outweighs the additional tax burden which it attracts.
We are grateful to PWC for their assistance in putting this note together. For further
Richard Davies, Chestertons: +44 (0) 20 3040 8244 / firstname.lastname@example.org
The contents of this report are intended for the purpose of general information and should not be relied upon as the basis for decision taking on the part of the reader. We would strongly recommend that you speak with a qualified tax specialist who would be able to advise on specific points of detail and appropriate action. Although every effort has been made to ensure the accuracy of the information contained within this note at the time of writing, no liability is accepted by Chesterton Global for any loss or damage resulting from its use. Reproduction of this report in whole or in part is not permitted without the prior written approval of Chesterton Global.