Budget 2014: changes to taxation of high value residential property

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In the Budget today, the Chancellor extended the application of the annual tax on residential properties held by corporate vehicles, and the related Capital Gains Tax (CGT) charge, so that they will apply, from April 2015, to properties worth over £1m and, from April 2016, to properties worth over £500,000. In addition, the punitive 15% Stamp Duty Land Tax (SDLT) rate for purchases by corporate vehicles will apply to acquisitions of properties worth more than £500,000 from 20 March 2014. The existing reliefs will continue to apply.

This change significantly widens the scope of the Annual Tax on Enveloped Dwellings (ATED) and related CGT charge and is likely to catch many more predominately non-UK resident individuals holding UK homes through non-UK companies. Individuals who may be affected should consider planning before April 2015 if they wish to avoid these new charges.

Stamp Duty Land Tax

From 20 March 2014, the 15% rate of SDLT will apply on the acquisition of  an interest, valued at over £500,000, in UK residential property bought by a company, a partnership (with a corporate member) or a collective investment scheme, whether onshore or offshore. The 15% SDLT rate will not apply where a property is acquired for the purpose of a property development business, letting to third parties on a commercial basis or a property trading business, provided that the property is not occupied by a person connected to the company (e.g. a shareholder or, in the case of a company held by a trust, the settlor or a beneficiary of the trust).

Relief from the 15% SDLT rate will be withdrawn if at any time in the 3 year period beginning with the date of purchase the property interest is not held exclusively for one or more of the relieved purposes, or a non-qualifying person occupies.

Annual tax & CGT

The ATED will apply:

  • from 1 April 2015, to property interests valued at over £1m on 1 April 2012 (the annual charge will be £7,500); and
  • from 1 April 2016, to property interests valued at over £500,000 on 1 April 2012 (the annual charge will be £3,000).

Companies (and other entities) which are subject to the ATED as a result of the introduction of these new ATED bands will also be subject to CGT at 28% on a disposal of the relevant property interest. The CGT charge will apply to ATED-related gains realised on disposals of properties for more than £1m from 6 April 2015 and for more than £500,000 from 6 April 2016.

The CGT charge will only to gains that have accrued during periods for which the ATED was payable.

The ATED does not apply where a property is held for the purpose of a property development business, letting to third parties on a commercial basis or a property trading business, provided that the property is not occupied by a person connected to the company.

If no ATED is payable at any time on a property, because a relief applies, the ATED-related CGT charge will not apply.

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