PROPERTY TAX UPDATE FOR DWELLINGS
7th October, 2013
Today we will look at:-
• Annual Tax on Enveloped Dwellings
• Reliefs from the 15% Stamp Duty Land Tax charge that apply in certain circumstances
• Capital Gains Tax regime on disposal of such property.
ANNUAL TAX ON ENVELOPED DWELLINGS (“ATED”)
Further changes have taken place in relation to high value residential properties owned by ‘non-natural persons’ (NNPs). NNPs are broadly companies, partnerships with companies amongst their partners or collective investment schemes. The measures also catch joint owners where one of the owners is a NNP.
As from 21 March 2012 Stamp Duty Land Tax (“SDLT”) is charged at 15 per cent on interests in residential dwellings costing more than £2 million purchased by certain NNPs. Properties valued over £2 million may also be caught by the new ATED (previously called the Annual Residential Property Tax) which came into effect from 1 April 2013 and will be payable each year. The deadline is approaching for the first filing of returns and payments.
An ATED Tax Return is needed for your property if all of the following apply:
• it is a dwelling – hotels, guest houses, boarding school accommodation, hospitals, student halls of residence, military accommodation, care homes and prisons are not deemed to be dwellings, so are not within the ATED
• it is situated in the UK
• it was valued at more than £2 million on 1 April 2012, or at acquisition if later
• it is owned, completely or partly, by an NNP.
Reliefs are available including for:-
• use for the purposes of a property rental business run commercially with a view to profit (subject to certain exceptions, for example, where the property is occupied by a person connected with the landlord);
• holding property as trading stock of a property development or trading business (again, subject to exceptions);
• property open to the public for at least 28 days a year as part of a trade carried on commercially with a view to profit;
• property repossessed by a mortgage lender;
• a farmhouse, subject to meeting various conditions;
• property held by a charity for its charitable purposes, subject to meeting various conditions;
• property held by a registered social housing provider for qualifying purposes.
To claim any reliefs that could reduce the tax completely you have to complete and send in a return.
The annual charge
A valuation at 1 April 2012 will decide which ATED band the property will fall into for the first five years of this tax charge. This could change if the property is developed, falls outside of ATED or becomes liable to ATED again (for example, if it becomes a non-residential property and then residential again).
The amount of ATED will be calculated on a step basis where the property value exceeds set thresholds as follows:
Residential property value Annual charge for 2013-2014 Tax Year
£2 million – £5 million £15,000
£5,000,001- £10 million £35,000
£10,.000,001 – £20 million £70,000
£20, 000,001 and over £140,000
The thresholds will be reviewed annually as part of the Budget process and will increase by consumer price index inflation each year. Property valuations for the annual charge will be self assessed and submitted to HMRC . A free pre-return banding check service is available where the value of the property is within 10% of a threshold. Properties will be re-valued every five years.
A separate return will be required for each property. You must send your completed return and payment by 30 April at the beginning of each ATED period. An ATED period lasts for one year and begins on 1 April. For the first year of ATED only, the deadlines for return submissions and payments have been extended to 1st and 31st October 2013 respectively.
For the ATED period beginning 1 April 2014 and for all future years, the return and the payment will be due by 30 April. For example, for the ATED period 1 April 2014 to 31 March 2015, both the return and payment are due by 30 April 2014.
STAMP DUTY LAND TAX (SDLT)
As mentioned above, a new 7% SDLT rate on the purchase of residential properties where the consideration exceeds £2 million and a new 15% SDLT rate payable where the same property is purchase by certain NNPs was introduced last year. There is currently a relief from the 15% rate for property development companies with at least a two year trading history.
However, following the Finance Act 2013 a new series of reliefs from the 15% rate are available for genuine businesses purchasing residential property over £2 million such as:
• Businesses of letting, trading in or redeveloping properties
• Trades involving making a dwelling available to the public
• Financial institutions acquiring dwellings in the course of lending
• Dwellings for occupation by certain employees etc
If a relief is available the rate of SDLT is reduced from 15% to 7%. All reliefs are subject to claw back if within three years of the effective date of the transaction the property is no longer used for the purpose for which relief was available or the property is used personally of for family occupation. Relief from the 15% rate of SDLT is claimed using the new code 35 when making an SDLT return.
Please also note that Disadvantaged Areas Relief will be abolished for transactions with an effective date on or after 6 April 2013. All claims for this relief must be made on or before 5 May 2014. Claims made after that date will not be accepted.
Capital Gain Tax (CGT)
From 6 April 2013 new CGT provisions apply to companies and other corporate bodies on disposals of UK residential property valued at over £2million. If a residential property which has been subject to ATED is disposed of some or all of the gains or losses will be ‘ATED-related’. The rate of capital gains tax on chargeable gains that are ATED-related is 28%.
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