The Chancellor has announced that certain anti-avoidance rules which were introduced in 2012 and 2013 on residential properties valued at more than £2m held by ‘non-natural’ persons will now apply to such property worth £500k or more.

SDLT – extension of the 15% rate

A rate of 15% SDLT currently applies to residential dwellings valued at more than £2 million purchased by certain non-natural persons (principally companies, but also including unit trusts and certain partnerships). The 15% rate will now also be capable of applying to a purchase of residential dwellings worth more than £500,000.

ATED – introduction of new rate bands

The government will introduce two new rate bands for the Annual Tax on Enveloped Dwellings (ATED), to bring properties worth more than £500,000 into charge. The first band will apply to residential properties worth more than £500,000 up to £1 million and will impose an annual charge of £3,500. The second band will apply to properties worth more than £1 million up to £2 million and will impose an annual charge of £7,000. As with the annual charges under the current ATED bands, the two new charges will be increased by CPI each year.

The ATED-related capital gains tax charge will also apply to properties in the two new ATED bands.

The measures are aimed at owner occupiers (or people who leave their properties empty) holding property through companies rather than in their own name. Reliefs continue to be available for property investors, developers and traders.

The extension of the 15% rate will take effect from 20 March 2014. The introduction of the two new ATED bands will be staggered, with the £1 million to £2 million band coming into effect from 1 April 2015 (and the capital gains tax charge applying to gains accruing from 6 April that year), and the £500,000 to £1 million band coming into effect from 1 April 2016 (and the capital gains tax charge applying to gains accruing from 6 April that year).

This measure reflects the government view that the existing rules on enveloped dwellings are seen as a success, both as a counter against the avoidance of SDLT through selling property in corporate ownership and as a revenue raiser in its own right. ATED has raised five times more revenue than expected and this extension is forecast to generate an additional £90m annually. There is also a welcome recognition that this imposes an administrative cost on those businesses claiming relief and that this needs to be addressed.

Source: Deloitte