Residential properties held through companies: time to change the structure?

The Annual Tax on Enveloped Dwellings (ATED) charge applies to ‘enveloped’ residential properties in the UK, i.e. those held by individuals or trusts through non-UK resident companies and other similar entities.

In yesterday’s Autumn Statement, the Chancellor announced that for the year beginning 1 April 2015 the charge will be increased, for properties valued at £2 million or more, by 50% above inflation.

Properties valued between £1 million and £2 million, which under existing legislation are being brought into the charge for the first time from 1 April 2015, are unaffected.

This will give charges for 2015/16 as follows (with the current figures for comparison):
 
 Value (at 1 April 2012)  ATED charge 2015/16  ATED charge 2014/15
 Between £1m and £2m  £7,000  nil
 Between £2m and £5m  £23,350  £15,400
 Between £5m and £10m  £54,450  £35,900
 Between £10m and £20m  £109,050  £71,850
 Over £20m  £218,200  £143,750


When the ATED was introduced, from 1 April 2013, most trustees and individuals connected to companies holding properties will have considered whether to ‘de-envelope’ the structure, so that the property was held directly. In reaching a decision, the ongoing ATED charge had to be balanced against the transaction costs of dismantling the existing arrangements (including in some cases stamp duty land tax) and possible inheritance tax advantages of retaining the company.

The significant increases to the ATED announced yesterday may well tip the balance of advantage. If you are connected to a company that is currently paying the ATED charge, you should reconsider the position as it may now be beneficial for the existing structure to be dismantled before 1 April 2015. Completing the changes may take some time where overseas company law or trust issues are involved, so the matter should be addressed as soon as possible.

For more information, please contact your local tax advisor.
 

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