Contributed by ACCA, in their own words
Taxation of high-value residential property held by non-natural persons extends to properties between £500,000 and £2m.
The package of taxes affecting high-value residential properties held by non-natural persons is being extended to properties worth more than £500,000 and up to £2m.
Measures have been announced in Budget 2014 that extend taxes affecting non-natural persons (NNPs) – ie companies, partnerships with company members and collective investment schemes – which purchase, own or dispose of high-value residential properties in the UK.
While the current threshold for the application of taxes to high-value residential properties held by NNPs is set at over £2m, the new measures extend the scope of taxes to residential properties worth more than £500,000 and up to £2m.
The package of taxes affecting NNPs are:
- stamp duty land tax (SDLT) at 15% on acquisition of a residential property;
- annual tax on enveloped dwellings (ATED); and
- capital gains tax (CGT) at 28% on any gain on disposal.
The new rate of SDLT of 15% applies for transactions with consideration in excess of £500,000 where the effective date, which is normally the date of completion, is on or after 20 March 2014. However, transitional provisions will be introduced to ensure that, in most cases, the existing £2m threshold will continue to apply for contracts exchanged before 20 March 2014 but completed after that date.
New £1m to £2m ATED tax band
ATED is a tax payable by NNPs who own high-value residential property (a ‘dwelling’). Currently an ATED tax return for a property is due if all of the following apply:
- it is a dwelling
- it is situated in the UK
- it was valued at more than £2m on 1 April 2012, or at acquisition if later
- it is owned, completely or partly, by a company, a partnership where one of the partners is a company, or a ‘collective investment vehicle’ – for example, a unit trust or an open-ended investment company.
The bands and tax charges for the 2014/15 period are:
Property value Annual charge
£2m to £5m £15,400
£5m to £10m £35,900
£10m to £20m £71,850
Over £20m £143,750
The new band for ATED applying to residential properties worth more than £1m (on 1 April 2012 or at acquisition if later) and not more than £2m, with an annual charge of £7,000, will apply from 1 April 2015. In the first year returns applicable to this band will not be required until 1 October 2015, with payment required by 31 October 2015.
An additional band for ATED applying to residential properties worth more than £500,000 and not more than £1m, with an annual charge of £3,500, will apply from 1 April 2016.
A dwelling might get relief from ATED if the property is:
- let to a third party on a commercial basis and it is not, at any time, occupied (or available for occupation) by anyone connected with the owner
- held for charitable purposes
- open to the public for at least 28 days per annum
- part of a property trading business and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner
- for the use of employees of the company, for the company’s commercial business and where the employee does not have an interest (directly or indirectly) in the company of more than 5%
- a farmhouse and is occupied by the farmer who farms the associated farmland full time and the farmhouse is of an appropriate character held as part of a commercial property development, provided that it was bought as part of property development business with the intention to redevelop and sell it on and it is not at any time occupied by anyone connected with the owner.
These reliefs could reduce the tax completely but they have to be claimed when the ATED return is submitted.
If a dwelling falls within the scope of ATED then, regardless of any reliefs that may apply, a return needs to be completed and sent to HMRC.
A completed return and payment must be sent by 30 April at the beginning of each ATED period. An ATED period lasts for one year and begins on 1 April.
For the ATED period beginning 1 April 2014 and for all future years, with the exception of the new £1m to £2m band introduced on 1 April 2015, the return and the payment will be due by 30 April.
If a dwelling first falls within ATED on a date after 1 April in an ATED period, then the return and payment are due within 30 days where purchased or 90 days where newly built.
CGT and the new band
All corporate and other ‘envelopes’ affected by the new ATED band will also be subject to CGT on disposal of the properties held, at a rate of 28%.
The extension to the ATED-related CGT charge will take effect from 6 April 2015 for properties worth more than £1m and not more than £2m. The charge will apply only to that part of the gain that is accrued on or after that date.
The extension to the ATED-related CGT charge will take effect from 6 April 2016 for properties worth more than £500,000 and not more than £1m. The charge will apply only to that part of the gain that is accrued on or after that date. The balance of any gain will continue to be treated as at present. Legislation on the CGT elements of this measure will be introduced in the Finance Bill 2015.