Annual Tax on Enveloped Dwellings (ATED) to be extended to dwellings over £500,000

From 1 April 2015, dwellings valued at over £1 million up to £2 million will be brought within the scope of ATED. Dwellings valued at over £500,000 up to £1 million will fall within the scope of ATED from 1 April 2016.

The Finance Bill 2014 will introduce two new ATED bands:

  • For dwellings valued at over £1 million up to £2 million, the annual charge will be £7,000. The first return will be due on 1 October 2015, with payment by 31 October 2015.
  • For dwellings valued at over £500,000 up to £1 million, the annual charge will be £3,500. We do not yet know when the first return must be filed and the tax paid for the 2016 chargeable period.

Once the regime is fully introduced, the bands will be:

Click here to view table.

The government has said that it will consult on possible options to simplify the administration of ATED (in particular for property businesses eligible for reliefs), but there is no date for when this will happen.

ATED-related Capital Gains Tax extended to dwellings over £500,000

The Capital Gains Tax (CGT) charge on disposals of property subject to the Annual Tax on Enveloped Dwellings will be extended to the two new ATED bands announced in the 2014 Budget.

In line with the introduction of the new ATED bands, the extension of the CGT charge will be in two stages. Disposals of enveloped properties with a value over £1 million up to £2 million will be subject to CGT from 6 April 2015 and disposals of enveloped properties with a value over £500,000 up to £1 million will be subject to CGT from 6 April 2016. However, CGT will only apply to gains that have accrued on or after those dates.

Capital Gains Tax charge on non-UK residents

The government will publish a consultation document on how best to extend CGT to disposals of UK residential property by non-UK residents shortly. The extension of CGT to non-UK residents (to be included in the Finance Bill 2015) was first announced in the 2013 Autumn Statement when the publication date for the consultation was scheduled for early 2014.

Income Tax: personal allowance for non-UK residents

The government intends to consult on whether and how the income tax personal allowance could be restricted to UK residents and those living overseas who have strong economic connections in the UK (as is the case in a number of countries, including most EU countries).

Dual contracts and non-domiciled employees

The government will introduce legislation in the Finance Bill 2014 to combat the use of artificial dual contracts by non-domiciled employees.

These proposals were published for consultation in January 2014. Following the consultation, the government has decided:

  • to exclude dual contracts that are not motivated by tax avoidance
  • to exclude directors who own less than 5 per cent of their employer
  • to exclude income which was earned before 6 April 2014
  • to take account of employments held for legal or regulatory reasons
  • to reduce the threshold in the comparative tax rate from 33.75 per cent  to 29.25 per cent.

These changes should target the new rules more closely on dual contracts that are created for tax avoidance rather than commercial purposes.

IHT liabilities and foreign currency bank accounts

Legislation will be introduced in the Finance Bill 2014 to treat funds in a foreign currency bank account in the same way as excluded property for the purpose of restrictions on deducting Inheritance Tax (IHT) liabilities.

The value of foreign currency bank accounts is left out of account when calculating IHT on the death of an individual who was not domiciled or resident in the UK. However, foreign currency bank accounts are not excluded property, so they are not caught by the restrictions on deducting IHT liabilities that were introduced by the Finance Act 2013 with effect from 17 July 2013.

FB 2014 will prevent a liability from being deducted from the value of an estate where the borrowed funds have been transferred, directly or indirectly, into a foreign currency bank account that is left out of account for IHT purposes.