In April 2013 we were introduced to the term 'enveloped dwelling' to define a residential property owned by a company (or other non-natural person). From that time, owners of enveloped dwellings have been required to pay an annual tax on enveloped dwellings or ATED charge where the value of the property at 1 April 2012 was in excess of £2m. Companies caught by these provisions also became liable to ATED related capital gains tax (CGT).
However, in his budget in March the Chancellor announced that the scope of the ATED regime would be extended, meaning that many more properties will now be subject to the charge. Over the next two years two new bands will be introduced for ATED (and ATED related CGT), as follows.
- From 1 April 2015 properties valued at more than £1m but not more than £2m will be caught and will need to pay an annual ATED charge of £7,000.
- From 1 April 2016 properties valued at more than £500,000 but not more than £1m will be caught and will need to pay an annual ATED charge of £3,500.
The first returns for properties within the £1m to £2m band will be due by 1 October 2015 with payment due by 31 October 2015.
In addition CGT at 28% will be payable on ATED related gains on disposals of properties within these new bands, on disposals after 5 April 2015 and 5 April 2016 respectively, the taxable gain being the excess of sale proceeds over the value of the property at these dates.
Relief from both the ATED and ATED related CGT charges will be available for landlords, property developers and certain other property owners. It remains necessary to submit an ATED return in order to claim the relief. The Government estimates that approximately 8,000 companies will face the administrative burden of completing returns to claim the relief. As a consequence the Government are currently considering alternative ways to claim the relief in order to lessen this administrative burden.
The initial valuation date for properties within the new bands will still be 1 April 2012 (or date of acquisition if later). Properties will then need to be revalued at 1 April 2017 and every five years thereafter. So we face the prospect of valuations of enveloped properties being required at 1 April 2012 for all properties within the ATED charge, 5 April 2013 for CGT purposes for properties valued at over £2m, 5 April 2015 for CGT purposes for properties between £1m and £2m, 5 April 2016 for CGT purposes for properties between £500,000 and £1m, and 1 April 2017 for all properties within the ATED charge.
Although the Budget notice announcing these changes was entitled, 'Changes to the taxation of high value UK residential property held by certain non-natural persons', when one considers that the average price of a house in London, i.e. not just those of high value, is predicted by some commentators to be in excess of £500,000 in 2015, it does appear that the scope of these charges has changed beyond that originally intended.
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