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Last week, the Chancellor made some important announcements concerning Stamp Duty Land Tax (SDLT) and Annual Tax on Enveloped Dwellings (ATED) which may impact on how a residential property is purchased and held and may act as a deterrent to overseas nationals investing in UK property in particular.
The key changes
In his budget on Wednesday, George Osborne announced that residential properties with a value of more than £500,000 purchased through a corporate envelope would be charged 15% SDLT from 20 March 2014.
The Chancellor also announced 2 new bands for ATED to bring residential properties worth £500,000 to £1 million and £1 million to £2 million into the charge. The ATED related capital gains tax charge of 28% on any gain on disposal will also apply to residential properties in the new ATED bands.
The government recognises that the structure of ATED can create some administrative burdens, therefore it will stagger the introduction of the new ATED bands. The £1 million to £2 million band will come into effect from April 2015, with the properties in this valuation band being subject to an annual charge of £7,000, and the £500,000 to £1 million band will come into effect from April 2016, with the properties in this valuation band being subject to an annual charge of £3,500. The proposed annual charges will be subject to increases in line with the consumer prices index.
The government believes the ATED and associated measures will discourage the use of corporate envelopes investing in high value UK housing, which are subsequently left empty or under-used while avoiding paying tax. Homes rented out are exempt from the measures in an attempt to reduce the number of empty properties in London.
The move is likely to deter foreign and UK buyers from using companies to buy residential property and may cause owners of properties valued at over £500,000 to examine how they structure their holdings. However, transferring properties into individual names may expose individuals to Inheritance Tax, so it will now be more important than ever to take out tax and inheritance planning advice to ensure the right structure is chosen to acquire and hold residential property valued at over £500,000.
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