Background to ATED
April 2014 saw the end of the first charging period for the Annual Tax on Enveloped Dwellings (ATED) (so-named because the dwelling is said to be “enveloped” as the ownership sits within a corporate “wrapper” or “envelope”). This tax is applied every year to properties worth over £2 million. The measures were initially introduced to dissuade “non-natural persons”, being companies, partnerships with one corporate partner and collective investment schemes, from owning high-value residential property. If properties have mixed use, only the part of the property used as a residential dwelling will be subject to the charge, and historic houses open to the public and farmhouses are subject to relief.
In the 2014 Budget, the government announced that two new ATED bandings would be introduced:
- From 1 April 2015 dwellings valued at £1 million - £2 million will have an annual charge of £7,000 levied against them.
- From 1 April 2016 dwellings valued at £500,000 - £1 million will have an annual charge of £3,500 levied against them.
Charges in future years will be index linked to the consumer prices index. The initial charge for properties subject to ATED from the above dates will be based on their valuation as at April 2012 or the date of acquisition, if later.
There is relief available, which will continue with the introduction of the new bandings.
The stamp duty land tax rate of 15 per cent for organisations buying residential properties worth over £500,000 came into force for transactions after 19 March 2014.
The effect of the changes
ATED was perceived as affecting only high value properties but these changes will bring what many would consider to be perhaps average house prices for certain parts of the country, within the scope of ATED.
At the very least, affected organisations should expect their administrative and compliance tasks to increase, although the government is consulting on reducing the administrative burden that ATED brings. Organisations affected by the new bandings must submit an ATED return and pay the tax within 30 days of the start of the chargeable period (or within 30 days of acquisition subject to certain rules). The return must be filed even if relief is available.
What is still not clear is whether this is a sufficient deterrent to prevent those affected from investing in high-value residential property. For larger organisations it may well be that the amount payable is proportionately relatively small and will simply be absorbed as part of the maintenance cost of the property. For smaller organisations, it might not be a sufficient increase in expense to warrant restructuring the company or the investments held at this time due to tax structures that are already in place.