Budget 2014 – Annual Tax on Enveloped Dwellings (ATED) and SDLT 15% rate extended to properties over £500,000

Companies (and certain other corporate entities) holding high value residential property are liable to 15% SDLT on acquisition, yearly ATED charges and CGT at 28% on the disposal of the property. Currently, high value property is defined as property worth more than £2 million, but reliefs apply where the property is held as part of a business (e.g. property rentals and developments).

The definition of high value residential property is now going to be extended to properties worth more than £500,000.

The 15% SDLT charge will apply to transactions where the effective date (normally the date of completion) is on or after 20 March 2014; however, the ATED new charge will be phased in.

From 1 April 2015, where a property is worth between £1 million and £2 million, an ATED charge of £7,000 per year will apply. In addition, CGT on the ATED related gains will apply from this date.

From 1 April 2016, where a property is worth between £500,000 and £1 million, an ATED charge of £3,500 will apply. In addition, CGT on the ATED related gains will apply from this date.

The Chancellor is building on last year’s new ATED rules to further deter ownership of UK property by non-residents through a corporate wrapper.

Although relief will be available for landlords and property developers, there will still be a compliance burden as annual returns will need to be submitted to claim relief.

In relation to future purchases, alternative property holding structures will need to be considered.

In relation to existing structures, there is a window of opportunity to de-envelope before the ATED charge applies, but great care needs to be taken not to trigger further tax charges on de-enveloping.

Perhaps the biggest concern is the slippery slope of extending the rules to properties worth more than £500,000. Particularly in London and the South East, it is difficult to categorise a £500,000 property as ‘high value’.