UK Residential Property

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UK Residential Property


The "Annual Tax on Enveloped Dwellings"


The UK Government implemented a taxation regime from 1 April 2013, called the “Annual Tax on Enveloped Dwellings” (ATED), which is currently aimed at a non-UK resident company holding UK residential property valued at £2m or more.

If certain criteria is met, and no exemptions apply, the non-UK resident company is subject to the ATED charge each year, and an ATED-related UK Capital Gains Tax (CGT) charge on the disposal of this residential property which is within the ATED regime. Even if an exemption applies from the ATED charge, for example the property is let on commercial terms to a third party, the company is still required to make an annual return/declaration to HM Revenue & Customs (HMRC). It has recently been announced that there will be a simplified reporting requirement where exemptions apply.

The payment and return are required within one month of HMRC’s deemed company tax year end for legislation purposes, which is 31 March. Therefore, the payment and return for the year ended 31 March 2015 is due by 30 April 2015, and the year ended 31 March 2016 is due by 30 April 2016.

From the 1 April 2015, the threshold for the application of the ATED, and the ATED-related CGT, is reduced to £1m. Therefore, UK residential property valued at £1m or more and held by a non-UK resident company could now be subject to the ATED regime. Please note that the ATED threshold will reduce to £500,000 from 1 April 2016.

The valuation of the UK residential property for ATED purposes is currently based on the 1 April 2012 market value, with the next ATED valuation date being 1 April 2017. Therefore, the £1m ATED threshold from 1April 2015, and £500,000 ATED threshold from 1 April 2016, will only be met if the property value as at 1 April 2012 is above the respective thresholds at those given date.


UK Capital Gains Tax


Many jurisdictions around the world have a form of immovable property tax on non-resident owners disposing of locally situated property.

In the UK, a new separate CGT regime will be applied to all non-UK residents owing UK residential property, this includes companies, individuals, and trusts. The CGT would apply on the disposal of the UK residential property, and not UK commercial property.

We are still awaiting the final legislation for this new regime. However, based on the draft legislation, the UK government does not intend to charge any gain arising before 6 April 2015. Therefore, the default position will be to ‘rebase’ the property to its market value as at 5 April 2015 so that only the gain realised over that value (after deduction of any allowable costs incurred after then) is subject to the new CGT regime.

If the taxpayer does not wish to rebase, they will have the option to ‘time apportion’ the whole gain over the period of ownership. This option will not be available if the disposal is subject to the ATED-related CGT.

Taxpayers will also have the option to compute the gain (or loss) over the whole period of ownership. This approach is consistent with the approach used for the ATED-related CGT calculation.

There will be no minimum value threshold under this regime, unlike the ATED regime, and the proposed CGT rates are:


Owner Rate %
Individuals 18% or 28%
Trustees 28%
Companies 20% (unless ATED – then 28%)

Losses on disposal of UK residential property will be ring-fenced for use against gains on such properties arising to the same non-UK resident ‘person’ in the same tax year, or carried forward to later years.

There are certain exemptions that could apply to certain residential ‘businesses’, for example, nursing homes and student accommodations. There could also be certain holding structures that are exempt from the new CGT regime. However, there is no exemption if the property is commercially let.

With regards to a non-UK resident company asset holding structure, a ‘closely-held company’ is likely to be subject to the new CGT regime. This type of company is one which is under the control of 5 or fewer participators, or that 5 or fewer participators together possess or are entitled to acquire the greater part of the company assets in the event of the winding up of the company.

Please note that where a company is subject to the ATED regime, this will take precedence over the new CGT regime. However, the new CGT regime will take precedence over the offshore anti-avoidance rules.


Stamp Duty Land Tax


The UK Chancellor, George Osborne, announced in his autumn statement on 3 December 2014 some significant changes to the Stamp Duty Land Tax (SDLT) regime for UK residential property. This new regime applies from 4 December 2014.

Under the old regime, SDLT was levied as a single rate depending on the value of the property, as detailed in the table below:


Value £ SDLT rate % on whole value
Up to 125,000 0
125,001 to 250,000 1
250,001 to 500,000 3
500,001 to 1,000,000 4
1,000,001 to 2,000,000 5
More than 2,000,000 7

Under the new regime, SDLT is charged on a marginal/progressive rate system, applying the appropriate rates to the different tranches of value, as detailed in the table below:


Value £ SDLT rate %
0 to 125,000 0
125,001 to 250,000 2
250,001 to 925,000 5
925,001 to 1,500,000 10
More than 1,500,000 12

The table below provides a comparison between the old and new SDLT regimes. It is clear that the focus of the new regime is to apply a greater SDLT charge on the higher value properties, and not to penalise home-buyers whose properties marginally overlap a higher SDLT bracket, which was the case under the old regime.


(OR = Old regime; NR = New regime)


Property Value £ OR - SDLT £ OR - Effective Rate % NR - SDLT £ NR - Effective Rate % Change £
150,000 1,500 1 500 0.33 - 1,000
200,000 2,000 1 1,500 0.75 - 500
300,000 9,000 3 5,000 1.67 - 4,000
550,000 22,000 4 17,500 3.18 - 4,500
937,500 37,500 4 37,500 4.00 0
1,800,000 90,000 5 129,750 7.21 + 39,750
3,000,000 210,000 7 273,750 9.13 + 63,750
6,000,000 420,000 7 633,750 10.56 + 213,750
10,000,000 700,000 7 1,113,750 11.14 + 413,750

Please note that the SDLT rate is 15% where a company acquires UK residential property in excess of £500,000. There are also reduced rates for SDLT purposes where transactions involve a mixture of residential and non-residential property.


Summary


The ATED regime applies to both non-UK and UK resident companies that own UK residential property which is above the applicable threshold in a given tax year. If the non-resident company is subject to the ATED-related CGT, this will take priority over the new CGT regime.

The new CGT regime will apply to non-UK residents that own UK residential property, which is not exempt from the regime. For disposals after 6 April 2015, one should consider whether to obtain a formal valuation of the UK residential property as at 5 April 2015 in order to provide evidence of the rebased cost for the new regime, assuming the company is not subject to the ATED-CGT regime, and the value has increased from when the property was purchased to the 5 April 2015 rebasing point. There will need to be a ‘number-crunching’ exercise to obtain the most tax efficient result on disposals of UK residential property from 6 April 2015.

Tax planning could be undertaking to mitigate the UK tax exposure, for example, changing the ownership structure of the UK residential properties. However, there will be other tax implications to consider including SDLT on the transfer of the property and exposure to UK Inheritance Tax (IHT) if the property is held directly by the individual after any restructuring of a corporate vehicle. In addition, there could be non-tax related implications to consider including succession planning and asset preservation.


If you have any queries or would like to discuss your tax situation please contact:


Dennis McGurgan



This article has been prepared from the UK Governments announcements, guidance and legislation and could be subject to revision. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Grant Thornton Limited, its directors, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

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