Home is Where the Charge is

The Annual Tax on Enveloped Dwellings or “ATED” regime is now upon us, and could end up being a first step towards a so-called mansion tax in the UK.

In the briefest of terms, the ATED regime currently applies where a high-value (£2m+ but this figure could be lowered in future) UK residential property is owned by a “non-natural person”, most often an offshore company. The entity holding the structure is then liable to an annual charge as follows (unless a relief or exemption applies):

Property value at 1 April 2012:

> £2 million but ≤ £5 million £15,000 annual charge
> £5 million but ≤ £10 million £35,000 annual charge
> £10 million but ≤ £20 million £70,000 annual charge
> £20 million £140,000 annual charge

Additionally, where the ATED charge is in point, a non-natural person disposing of a UK property will in future be liable to UK capital gains tax on any increase in the value of the property over its market value at 6 April 2013.

The combined ATED and capital gains tax charges as above may make acquiring UK property interests via an offshore structure unappealing going forward, particularly as a 15% stamp duty charge would also apply. That said, recent evidence amongst our client base has suggested that even these “3 evils” may not deter an overseas investor given the inheritance protection of an offshore holding structure. The ATED etc. changes have inevitably made that decision a more delicate balancing act, however.

Similarly, those with an existing offshore holding structure should review this as a matter of urgency to establish whether it continues to be an attractive solution. There is no simple answer to his, but restructuring may be preferable in several instances. Equally, if an existing structure is to be retained, an active decision to that effect and compliance with the new regime is important.

As might be expected, HMRC are reviewing land registry records for instances of high-value property owned by corporate entities, with a view to enforcing the regime. Structuring/re-structuring considerations aside, some practical considerations as follows are therefore important to bear in mind.

  • Whether or not an ATED charge is due is to be assessed on 1 April each year, with the associated tax return to be filed and tax to be paid within 30 days thereof, i.e. by 30 April each year. There is a relaxation of this date to 1 October 2013 in respect of the chargeable period beginning on 1 April 2013 only, but urgent action is now required by those who may potentially fall within the ATED charge.
  • Where high-value property is held by a non-natural person, an ATED return will be required, even if an exemption from the charge applies. This is perhaps most relevant in the context of properties which are let commercially, as these will escape the ATED charge but landlords will be required to submit a return to claim the exemption.
  • In response to EU law concerns, UK companies and certain collective investment vehicles (e.g. a partnership where one of the partners is a company, a unit trust or an open ended investment company) have been brought within the ATED regime and may need to file an ATED return.

We can assist with all aspects of the ATED regime, whether that be structuring a new purchase, considering re-structuring an existing set-up, or straight-forward compliance with the new rules.