ATED – a very uncuddly tax

Stamp Duty Land Tax (“SDLT”) on property acquisitions is expensive. It is a tax which has not kept pace with inflation. The bands for SDLT have not increased since 1997, at which point an “average” house cost around £80,000 and incurred no stamp duty. Now, the average price is three times that, which could put a lot of “normal” family homes into the 3% price bracket, with stamp duty in excess of £7,500.

For properties valued at over £1,000,000, the SDLT alone is £50,000.

For the higher valued properties there has been a market for (arguably) legitimate tax avoidance schemes, which worked in various ways but generally combined provision intended to allow Islamic finance with the lower rate of stamp duty on the transfer of shares in limited companies, with the result that an individual would own the shares in a company which, in turn, owned the residential home.

The government has sought to close that loophole by introducing a tax known as the Annual Tax on Enveloped Dwellings or “ATED”. In the 2013 budget, that caught properties with a value exceeding £2,000,000 and was extended in the 2014 budget to properties at more than £500,000.

ATED only affects properties that are owned by limited companies and occupied by shareholders, directors or other persons connected to those individuals of that limited company. As such, the tax only has a limited effect (and largely on those who were seeking to avoid high rates of SDLT in the first place), but for those persons the requirement is to pay an annual charge of £15,000 where the property value is between £2,000,000 – £5,000,000, £7,000 where the property value is between £1,000,000 and £2,000,000 and £3,500 per annum where the property value is between £500,000 and £1,000,000.

The provisions of the regulations are complicated. There are various reliefs available, such as those for property rental businesses, dwellings open to the public and property traders. However, anybody in a situation where a company owns residential property should take early advice on whether they risk a liability and, if so, the best way to extricate themselves from this very unfriendly tax.

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