Background
All companies (whether UK or not) holding UK residential property valued at over £500,000 are subject to the Annual Tax on Enveloped Dwellings (ATED).
The ATED year runs from 1 April to 31 March and companies must file an ATED return by 30 April for each ATED year during which they hold a UK residential property. If any reliefs are available then an ATED relief return must be submitted in order to claim them, if a relief does not apply then the company will be liable to pay an annual chargeable amount based on the value of the property at the most recent valuation date.
ATED-related Capital Gains Tax (CGT) currently applies to any post 5 April 2013 gains on UK residential property to the extent that the taxpayer has been liable to ATED. However from 6 April 2019 ATED-related CGT will be abolished and the non-resident CGT regime will be expanded. This provides potential tax saving opportunities for companies planning to dispose of properties liable to ATED in the near future.
Abolition of ATED-related CGT
ATED-related CGT charges will be abolished under the Finance Act 2019 with effect from 6 April 2019, after this date the relevant tax regime for companies disposing of UK residential property will be UK corporation tax. The abolition of ATED-related CGT presents a potential tax saving opportunity for companies disposing of UK residential property. ATED-related CGT is currently charged at 28 per cent on all gains made since 5 April 2013 with no indexation allowance while corporation tax will instead be charged at 19 per cent (due to be reduced to 17 per cent from 1 April 2020) on all gains made since 5 April 2015 with indexation allowance up to 31 December 2017. This change could provide an incentive for companies planning to dispose of properties subject to ATED to wait until 6 April 2019 to make the disposal.
Example of potential tax savings:
Assume a UK residential property owned by a foreign company was valued at £6 million on 5 April 2013 and has increased in value to £8 million by 5 April 2015. In early 2019 the company makes the decision to sell the property, however by this point the property had increased further in value to £10 million. In these circumstances the decision to sell before or after 6 April 2019 could make a substantial difference to the amount of tax payable.
If the property was disposed of in March 2019 (provided that it was always chargeable to ATED) the amount being assessed for tax would be based on the total amount that the property has increased in value since 5 April 2013, in this case that gain would be £4 million which would then be subject to tax at the ATED-related CGT rate of 28 per cent. This would incur a tax bill of £1.12 million.
If the property was instead disposed of on or after 6 April 2019 then the disposal would be subject to corporation tax instead. This means that the increase in value would be calculated based on the 5 April 2015 value, which in this case would be £2 million. This amount would also be subject to an indexation allowance for the period between April 2015 and December 2017 reducing the taxable gain to £1.376 million. This amount would then be taxed at the corporation tax rate of 19 per cent resulting in a total tax liability of £261,440, a substantial saving compared to the tax liability due under the ATED-related CGT regime.
The impact of the anti-avoidance provision in section 13 of the Taxation of Chargeable Gains Act would also need to be considered to determine whether any of the pre-5 April 2015 or pre-5 April 2013 gain will be taxable. It is also worth noting that the Finance Act 2019 moves this anti-avoidance provision from section 13 to section 3 of the Taxation of Chargeable Gains Act with effect from 6 April 2019.
Non-resident CGT (NRCGT) changes
Currently NRCGT only applies to tax gains realised by non-residents on the disposal of UK residential property. However, the Finance Act 2019 will, from 6 April 2019, extend the scope to also tax:
- Gains arising from disposals of UK immovable property (i.e. commercial properties and UK land); and
- Indirect disposals of interests in property rich entities where the non-resident person holds, or has held, a 25 per cent or greater interest in the company. Property rich entities include any company that derives 75 per cent or more of its gross asset value from UK property whether residential or commercial (however there is an exemption available for property rich companies that hold the UK land for trading purposes).
Those being brought into charge for capital gains tax for the first time as a result of these new rules will have the opportunity to rebase their gains to 5 April 2019.
ATED chargeable amounts for 2019/20
The ATED bands and chargeable amounts for the 2019/20 ATED year are set out in the table below:
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Property value bands based on the last valuation date
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Annual chargeable amount for the 2019/20 Year
Last year's in brackets
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More than £500,000 but not more than £1 million
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£3,650 (£3,600)
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More than £1 million but not more than £2 million
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£7,400 (£7,250)
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More than £2 million but not more than £5 million
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£24,800 (£24,250)
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More than £5 million but not more than £10 million
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£57,900 (£56,550)
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More than £10 million but not more than £20 million
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£116,100 (£113,400)
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More than £20 million
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£232,350 (£226,950)
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On 1 April 2015 the government unexpectedly increased the applicable rates for properties over £2 million by 50 per cent but in general they will be indexed in line with the consumer price index (CPI) with the charges increasing each year on 1 April.
However, as the property value bands are not index-linked, if there continues to be a longer-term upwards trend in property values then more and more properties will come within ATED and become liable to larger annual charge amounts as time goes on.
The new ATED valuation date
The ATED chargeable amount for each property is determined by the band into which the property's market value falls on its most recent valuation date.
The first valuation date for ATED was set as 1 April 2012 and the valuation date is reset every five years after this date (i.e. 1 April 2017, 1 April 2022, 1 April 2027 etc.). However, the new 1 April valuation date only applies for the following ATED year and for the next four ATED years.
Therefore, 1 April 2017 is the current valuation date for ATED and will apply for the 2019/20 ATED year and all ATED years up to and including the 2022/23 ATED year.
For further considerations regarding ATED valuation dates please refer to our briefing from October 2017 - 'ATED valuation dates: what you need to know'.
Filing deadline
ATED returns for the 2019/2020 period must be submitted by 30 April 2019 and any ATED due should also be paid by that date. However, it is not possible to submit 2019/20 ATED returns before 1 April 2019.
ATED online system
All ATED returns for the 2019/20 ATED year are to be submitted using HMRC’s ATED online system.
How can Burges Salmon help?
We have extensive experience of assisting clients with their ATED, ATED-related CGT and NRCGT returns and liabilities and liaising with HMRC in relation to such returns and taxes. In addition, we have advised numerous clients on how best to restructure their affairs in light of ATED, NRCGT and the inheritance tax changes which have applied since April 2017 (including advising on how to unwind structures in the most tax efficient way).
If you or your client would like further guidance on your ATED or UK tax obligations then please contact John Barnett in our private client team.