NEWSLETTERS

Tax on high value properties owned by companies and other non-natural persons

Published on 13 October 2013

Tax on high value properties.

There was a lot of talk and debate on the impact of the new taxes last year when they were announced. The annual tax (starting at £15,000) and the 15% Stamp Duty Land Tax were the subject of many heated conversations. We have just seen our first of the returns (and payments) go through and it is worth reminding ourselves of the exemptions.

The 15% rate for SDLT (Stamp Duty Land Tax), the Annual Tax on Enveloped Dwellings (ATED (formerly ARPT)), and the 28% rate of Capital Gains Tax apply to purchasers and owners of property worth over £2m bought or owned by a non-natural person (which includes companies) subject to certain exemptions.

The 15% SDLT rate does not apply where the property is acquired by a developer with more than two years track record or where the purchaser(s) are the trustees of a settlement. For these categories of purchaser normal SDLT rates apply.

The Annual Tax on Enveloped Dwellings (ATED (formerly ARPT)) starts at £15,000 p.a.. A dwelling might get relief from ATED if it is:

  • Let to a third party on a commercial basis and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner.
  • Open to the public for at least 28 days per annum. If part of a property is occupied as a dwelling in connection with running the property as a commercial business open to the public, the whole property is treated as one dwelling and any relief will apply to the whole property.
  • Part of a property trading business and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner.
  • Part of a property developers trade where the dwelling is acquired as part of a property development business the property was purchased with the intention to re-develop and sell it on and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner.
  • For the use of employees of the company, for the company’s commercial business and where the employee does not have an interest (directly or indirectly) in the company of more than 10 per cent. The employee’s duties must not include services for any present or future occupation of the property by someone connected with the company. The relief is also available where a partner in a partnership does not have an interest of more than 10 per cent in the partnership.
  • A farmhouse, if it is occupied by a qualifying farm worker who farms the associated farmland, a former long-serving farm worker or their surviving spouse or civil partner.
  • A dwelling acquired by a financial institution in the course of lending.
  • Owned by a provider of social housing.

Where a residential property valued at over £2million is disposed of and ATED was chargeable for some or all of the period of ownership, some or all of the gains or losses which arise will be ATED-related and will be chargeable to Capital Gains Tax at 28%. However it is only the gain post 1st March 2013 that are chargeable and if any of the ATED exemptions apply the ATED Capital Gains will not be payable. (But the normal CGT rules may apply).

UPDATE

Since writing the above article the ATED has been extended so that over the next few years properties worth as little as £500,000 will be subject to the tax. While properties that have been let (subject to very strict rules benefit from an exemption, this exemption is not automatic and has to be applied for on the annual ATED tax return.

UPDATE – MARCH 2015

The rates of tax have increased by about 50% for 2015-16 (See Rates and Tables).

The newsletters on this website are believed correct at the time of publication. They may not include subsequent changes in the law. If the subject matter is of interest you should contact us to see if there is a relevant update.

Taxation is a complicated subject and is subject to change. This article is provided for general guidance only. You should only rely on advice prepared specifically for you. Neither the writer nor Landlords Tax Services Ltd can be held liable for any loss arising from any act or omission by you as a result of your understanding of this article.

Landlords Tax Services Ltd, specialises in the taxation of residential property income and gains and around half its clients are resident outside the UK. If you would like specialist help contact Maurice Patry F.C.A. at maurice@landlordstax.co.uk or for more information visit our website at Landlords Tax Services Ltd