Despite introducing annual taxes to deter homes being purchased by companies, it has been revealed that in 2015/16, around 5,720 residential property owners continue to pay Annual Tax on Enveloped Dwellings (ATED) rather than register the home in their own name.
On 1 April 2013, the Government introduced ATED. This is a special annual tax on high value UK residential properties which are completely or partly owned by ‘non –natural persons’. Non-natural persons are defined as being UK resident or non-UK resident companies, partnerships with a corporate partner or collective investment schemes. As explained in our earlier blog, the Government believed the ATED and associated measures would discourage the use of corporate envelopes investing in high value UK housing, while avoiding paying inheritance tax. The introduction of ATED was partially designed to compensate the Treasury for that loss of revenue.
At present, the valuation of the property at 1 April 2012 (or the amount at acquisition, if later) determines the amount of ATED liable to the owners. When this tax was originally introduced it only applied to homes which were valued at £2 million or more. Over the past few years, this has gradually extended so that, in the year 2016/2017, homes valued at £500,000 or more attract ATED. The most expensive homes incur the most ATED, with homes valued at £20 million or more currently being charged £218,200 ATED per annum.
In a recent HMRC report publicising an overview of ATED statistics, it was revealed that this annual tax was not deterring all property owners from using corporate envelopes, with figures showing around 5,720 owners continuing to not register the property in their own name. Of the 5,720 homes owned by ‘non-natural persons’, 210 are mega-mansions valued at £20 million or more.
However, there has been a fall in the number of properties to which ATED applies since 2014/15. Despite this fall in the number of properties liable for the tax, in 2015/16, HMRC accrued total tax receipts of £178 million from ATED, marking an increase of £62 million on the year before. The report explains how this “can be attributed to the introduction of the £1m to £2m band, as well as the rise in charges for every other price band”.
In spite of the increasingly extensive and large ATED charges, this report undoubtedly highlights the importance some owners place on their privacy. Nevertheless, the slight reduction in the number of properties attracting ATED arguably demonstrates a small step in the right direction in line with the Government’s aims. More importantly, the Government are amassing a significant amount of money which was previously not collected.
In addition to the ATED charge increasing for each band again on 1 April 2017, further provisions are being introduced on 6 April 2017 such that UK residential properties within offshore companies will now be liable for inheritance tax. With no inheritance tax advantage, increasing ATED charges and the annual costs of maintaining an offshore company, it is unsurprising that many will now view owning a home through a company as financially unattractive.
- For the purposes of this tax, the value of property is determined every five years. The next statutory valuation date is 1 April 2017. The property value on that date will determine the level of ATED charge for the five years on and after 1 April 2018.
With thanks to Jim Sawer and Stephanie Forster, from our Private Client team, for their contribution to this blog.
For more information on the issues raised in this blog, please contact a member of our Real Estate or Private Client team.