Lurking in the fine detail of the Chancellor’s Autumn Statement is the news that the annual tax on enveloped dwellings (ATED) is to increase in rate and scope, with effect from 1 April 2015.
ATED is currently payable on residential properties worth more than £2m held by ‘non-natural persons,’ such as companies, collective investment schemes or partnerships with corporate members. Following the budget earlier this year, ATED will apply, from 1 April 2015, to such properties worth more than £1m. The Autumn Statement confirms that it will apply, from 1 April 2016, to such properties worth more than £500,000 .
The rate at which ATED is paid depends on the value of the property. The rates of ATED are to increase by 50% above the rate of inflation, resulting in a top rate of £218,200 for properties worth over £20million. From 1 April 2015 the annual charge will be:
The amount payable from 1 April 2016 for properties worth more than £500,000 and up to £1m is currently fixed at £3,500.
Capital Gains Tax will also apply to all properties within the ATED regime from April 2015 and will be payable on growth in value as from that date (or from April 2016 for applicable properties worth more than £500,000 and up to £1m). It remains to be seen how any proposals currently under consultation to extend capital gains tax to all non-UK residents owning UK residential property will mesh with the ATED regime; in particular whether there will also be a £500,000 threshold for properties not ‘enveloped.’
Clearly, the regime is intended as a deterrent to the ‘enveloping’ of residential property in the future. However, for existing properties owned this way the challenge is to see how they can be ‘de-enveloped’ without a UK tax charge arising.