UK: The New ATED ‘Mansion Tax’

A form of 'mansion tax' on high value UK residential property held in corporate ownership took effect from 1 April 2013. It is known as the annual tax on enveloped dwellings (ATED).

ATED applies where a UK residential property worth £2m or more is held in a corporate structure (an 'envelope') and this includes a partnership with a corporate member. ATED can apply to all companies whether UK or offshore. Hence where a large farmhouse or historic house is owned by a UK company, possibly under a long lease, ATED potentially applies.

The good news is that there are a large number of reliefs available for property developers, property rental businesses, many farmhouses and house opening businesses. The bad news is that if the property value is over the ATED threshold, the relief must be claimed on an annual basis.

The first ATED returns (including any claims for relief) are due by 1 October 2013 and the ATED payable by 31 October 2013.

The ATED amounts range from £15,000 for properties within the £2m to £5m band to £140,000 for properties worth over £20m. The values used are those on 1 April 2012 or acquisition date if later. The ATED amounts will increase but the bands themselves will not change.

The ATED is most likely to be payable where a shareholder or beneficiary of a trust owning a company occupies a UK property. It is expected that most companies owning large farmhouses and historic houses will be able to claim relief from ATED but the terms of the reliefs must be checked in detail and the relief must be claimed.

A further sting in the tail is the imposition of capital gains tax at 28% on the sale of properties where ATED has applied, although this only applies to the post 6 April 2013 gains. While it may be possible to 'de-envelope' so that the ATED is not payable, this may in itself trigger tax charges. It may also potentially expose the value of the UK property to inheritance tax.

We recommend that a thorough review of every company which may have a property liable to ATED is undertaken as soon as possible.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.