Changes to annual tax on enveloped dwellings (ATED) thresholds

It was announced in the last Budget that the ATED threshold of properties valued at more than £2m is to be lowered over the next few years.

The ATED charge currently applies to UK residential properties held in corporate and similar structures if they were worth more than £2m in April 2012, or at acquisition if later.

The lowering of the threshold will mean that an ATED charge will be extended to such properties worth more than £1m from April 2015 and then to those worth more than £500,000 from April 2016. In both cases the valuation for ATED purposes is that at 1 April 2012, or at acquisition if later. The new charges will initially be set at £7,000 and £3,500 per annum for properties in these two bands.

There are various reliefs from paying ATED, for example where the UK residential property is let on a commercial basis to third parties. Under the current rules such an exemption has to be claimed on an annual basis. HMRC is however consulting with interested parties so as to try and reduce the compliance burden for companies.

Where ATED is payable then there is also an ATED related Capital Gains Tax (CGT) charge when the property is sold.

New Capital Gains Tax charges from 6 April 2015

If the property is not within the ATED regime (or ATED is not payable because a relief applies) then the ATED related CGT charge will not apply. However, with effect from 6 April 2015, it is expected that UK CGT will apply on sales of UK residential property by all non-UK residents on or after that date. It is understood that the taxable gain will only be the gain accruing after 6 April 2015, although the detailed rules have been the subject of consultation. The new CGT charge will apply to all sales of UK residential properties by all non-UK residents, be they companies, trusts or individuals.

If any gain is taxable the rate of tax may be at 20% (to match that for UK companies) or at 28% (to mirror ATED related CGT). Further details will be available later this year, possibly around the time the draft Finance Bill clauses are published on 10 December.

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