Significant changes to the Annual Tax on Enveloped Dwellings charge

Changes to the Annual Tax on Enveloped Dwellings (ATED) charge from 1 April 2015 mean it is more important than ever for companies to consider whether they are caught by the charge. The reduction in the threshold at which properties enter the ATED regime, together with the significant increase in the ATED charge for companies already in the regime, will mean that a large number of companies will be affected by the changes.

The ATED charge was introduced on 1 April 2013 as part of a package of measures intended by the government to counteract so-called ‘enveloping’, where residential property is held by companies or certain other vehicles with a corporate element. The ATED is charged on affected residential properties, subject to a number of reliefs. The most significant of these is for property let commercially to persons unconnected with the owner.

When introduced, the charge related only to residential properties with a value of more than £2 million. However, from 1 April 2015 the charge will also apply to properties valued between £1 million and £2 million. Properties valued between £500,000 and £1 million will be brought into the charge from 1 April 2016.

In addition to the change to the value of properties caught by the new charge, in the 2014 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% plus inflation. This is a significant increase in the ATED charge and may prove a nasty surprise for any companies unaware of the upcoming changes.

The ATED charges for 2015/16 will be as follows (with the current figures for comparison):

 
 

Property 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

 

The increased payments and ATED return for the period beginning 1 April 2015 will both be due by 30 April 2015. However, for the period beginning on 1 April 2015 the return will be due on 1 October 2015 with payment by 31 October 2015 where the new £7,000 charge is applicable. These extended time limits will not apply on the introduction of the £3,500 charge in 2016.

When the ATED was introduced in 2013 most trustees and individuals connected to companies holding properties worth more than £2 million 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. Trustees and individuals connected to companies holding properties worth more than £500,000 should now carry out a similar review.

In addition, the significant increases to the ATED charge from 1 April 2015 may well tip the balance of advantage when reviewing the ownership of a property. 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. Restructuring the ownership of a property may take some time where overseas company law or trust issues are involved, so the matter should be addressed as soon as possible.

Further information on the ATED charge can be found in our factsheets, here and here. If you would like to discuss the ATED changes and how they may affect you please contact your usual Moore Stephens tax adviser.