In January of last year, we published an article entitled 'ATED Changes for 2015’ in which we mentioned that new ATED (Annual Tax on Enveloped Dwellings) bands would be introduced from 1 April 2015 and 1 April 2016. The 1 April 2016 is now fast approaching and the new band will bring significantly more properties into the scope of ATED and ATED-related CGT.
The New ATED Band
From 1 April 2016, properties worth over £500,000 will be brought into the scope of ATED. However, it is worth remembering that the relevant valuation date is generally 1 April 2012 (or the date of acquisition if later). For the chargeable period beginning 1 April 2016, the annual chargeable amount for the new band will be £3,500.
The table below sets out the annual chargeable amounts for the different bands. With the exception of the amount for the new band, the amounts for 2016/2017 are yet to be confirmed but should be increased by reference to the increase in the consumer prices index for the year to September 2015. We expect the amounts to be announced at or around the time of the Budget (16 March 2016).
Property value Annual chargeable amount 2014-2015 Annual chargeable amount 2015-2016 Annual chargeable amount 2016-2017
- £500,000 - £1million n/a n/a £3,500
- £1million - £2million n/a £7,000 TBC
- £2million - £5million £15,400 £23,350 TBC
- £5million - £10million £35,900 £54,450 TBC
- £10million - £20million £71,850 £109,050 TBC
- More than £20million £143,750 £218,200 TBC
Filing Deadline
ATED returns for the 2016/2017 period must be submitted by 30 April 2016. The later deadline of 1 October applied only to returns for the 2015/2016 period.
ATED Changes in the Finance Bill 2016
Following the Chancellor’s announcement in the Autumn Statement, the Finance Bill 2016 contains the following changes to ATED reliefs:
- An extension of the relief for employee/partner occupation for the purposes of a qualifying trade. The relief may now be available to employees of a qualifying property rental businesses.
- A new relief from ATED (caretaker relief) will apply if one flat in a building is occupied by a caretaker as living accommodation in connection with his employment by the tenants' management company.
- A new relief (home reversion plan relief) will apply if an interest is held in a dwelling solely for the purposes of entering into a regulated home reversion plan.
These measures will have effect for chargeable periods beginning on or after 1 April 2016.
Non-resident CGT (“NRCGT”)
With effect from 6 April 2015 all non-UK resident persons (including companies) are subject to NRCGT on the disposal of UK residential property to the extent any gain realised relates to a period since 6 April 2015. The company will usually pay NRCGT on any gain which accrues on or after 6 April 2015 but a company can make an irrevocable election to pay NRCGT on another basis (such as the whole of the gain on a time-apportionment basis).
The applicable rate of NRCGT for companies is 20%. NRCGT will only apply to the extent that the gains are not subject to the ATED-related gains charge mentioned below. The relevant valuation date for NRCGT is 5 April 2015.
ATED Related CGT
As more properties are brought into the scope of ATED, they will also potentially come into the scope of ATED-related CGT on any later disposal. The ATED-related CGT charge will apply to any post April 2013 gains to the extent the ATED regime applied to the property during this period (i.e. ATED applied with no relief).
ATED-related CGT is charged at a rate of 28%. For new ATED band properties the relevant valuation date is 5 April 2016.
CGT Anti-avoidance
If the company holding the property is a non-UK tax resident close company then, to the extent that any of the gain is not subject to ATED Related CGT or NRCGT, CGT may also be payable by virtue of the anti-avoidance provisions in the Taxation of Chargeable Gains Act 1992 which attribute gains to shareholders. If a shareholder is holding as trustee then there are further provisions which could attribute the gain to settlors or beneficiaries.
Comment
The introduction of ATED, ATED-related CGT and NRCGT has led to a complex array of taxes for companies holding UK residential property. The disposal of a property held by a non-UK company could potentially give rise to three different CGT charges, all of which could require different valuation dates.
With 1 April 2016 fast approaching, many people with residential properties held in company structures may well be thinking of de-enveloping (see our briefing ‘To de(-envelope), or not to de(-envelope); that is the question’). Others will be preparing ATED returns for the first time.
How we can 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. In addition, we have advised numerous clients on how best to restructure in light of ATED and the forthcoming changes from April 2017 and how to unwind structures in the most tax efficient way.
If you would like further information then please contact John Barnett or Suzanna Harvey or your current contact at Burges Salmon.