6 November 2015 by

Annual Tax on Enveloped Dwellings – Pay or Restructure?

There has been recent discussion in the press about a new tax threshold, being introduced in April 2016, affecting residential properties that are subject to the Annual Tax on Enveloped Dwellings (ATED).

ATED is a tax charged on residential properties that have been ‘enveloped’ into a structure where they are held by a company or ‘non-natural person’. The tax was introduced by the Government as a way of trying to claw back tax from individuals who used company structures to avoid large tax bills.  This investment structure is commonly used in London, especially so for properties of non-UK domiciled individuals.

ATED is paid annually and the rate is based on the value of the property. It was originally introduced in 2013, for properties valued at over £2m, but the tax threshold has slowly been reduced since then so that it now affects any property valued at over £1m at the time of acquisition.

The up to date rates can be found here.

There are various reliefs available from ATED including for providers of social housing, property rental businesses and properties used in carrying out a trade. In April 2015, HMRC introduced simplified ATED relief claim forms to assist businesses with submitting their returns, including the ability for businesses to cover their full portfolio of properties on one return so long as the same relief is being claimed in respect of each property.

From 1 April 2016, there will be a further new band introduced for properties that are subject to ATED and valued at more than £500,000, but not more than £1m, which will be subject to an annual tax of £3,500. This is likely to affect many more properties and generate even more income for the Government. The Treasury has already announced that it raised 5 times the amount forecast for 2013/14 from ATED and ATED-related Capital Gains Tax.

This introduction of a lower threshold for the payment of ATED will undoubtedly cause many owners of enveloped residential property to reflect on whether to continue to hold their properties in their current structure or to de-envelope. Of course any transfer in ownership will then raise further taxation implications which all have to be carefully considered.

There are only a few more months left until 1st April 2016 so the question to be asked is “do I pay or restructure”…..

If you have any queries on whether ATED will have an impact on your property, please contact Kasia Grygorczuk on 020 7288 4776 or at kasiagrygorczuk@boltburdon.co.uk.

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