HM Revenue & Customs ATED profits set to leap by 50%

According to the Society of Trust and Estate Practitioners (STEP), receipts for the tax on residential property worth over £1m held via a UK or non-UK based corporate vehicle amounted to £135m between April and May this year, compared to £91m during the same period in 2014.

ATED is an annual charge, so the large majority of payments for a tax year are made in April and May.

Based on these figures, STEP said that the total 2015 – 2016 receipts will come in at around £172m, compared to £11m in 2014-15.

The increase comes after the rates payable on more expensive properties were increased by 50% and the minimum property value was lowered from £2m to £1m from April 2015.

STEP said further changes to ATED are expected, with properties valued above £500,000 expected to be brought into the tax’s net from 1 April 2016.

Richard Morley, BDO partner, tax dispute resolution, said the minimum property value for ATED was lowered following the Finance Act 2014 as a way for the Government to raise greater sums of cash from wealthy, mainly non-dom taxpayers.

The Finance Act also introduced an annual charge of £3,500 for residential properties with values of between £500k and £1m and this will become effective from 1 April 2016, he added. 

“Given that the majority of residential properties subject to the ATED charge will probably have values in excess of £500k it is unlikely that the property values caught by ATED will continue to decrease. Instead, the main increase in revenues from ATED will be seen in April or May 2016 following the 50% plus inflation increase effective for 2015/16. 

“There is nothing stopping the Government from further increasing the ATED charge, especially, as experience shows most clients opt to simply pay it, rather than incur the cost and potential additional tax exposure through de-enveloping or restructuring. However, given the scale of the ATED charge increases, as announced last year, it may prove risky for the Government to introduce any significant further increase to the ATED charge, at least for the time being”, Morley said.

ATED explained

The annual tax on enveloped dwellings has applied since 1 April 2013 to high value properties held by companies, partnerships with a corporate partner and collective investment schemes, whether UK or non-UK resident.

Initially, only properties over £2m were affected but from 1 April 2015 properties over £1m were included and the rates were increased by 50%.

Most residential properties are owned directly by individuals. But in some cases a dwelling may be owned by a company, a partnership with a corporate member, or other collective investment vehicle. In these circumstances the dwelling is said to be ‘enveloped’ because the ownership sits within a corporate ‘wrapper’ or ‘envelope’.

According to HMRC, you’ll need to complete an ATED return if your property:

• is a dwelling
• is in the UK
• was valued at more than £2 million on 1 April 2012 or at acquisition if later for returns from 2013 to 2014 onwards
• was valued at more than £1 million on 1 April 2012 or at acquisition if later for returns from 2015 to 2016 onwards
• is owned completely or partly by a company, a partnership where one of the partners is a company, or a ‘collective investment vehicle’ – for example, a unit trust or an open ended investment company

The current ATED rates are as follows: