An increase of more than 50% in the annual tax on enveloped dwellings is hard to swallow
As part of the Autumn Statement it was announced that “The government will increase the annual charges of the ATED by 50% above inflation for residential properties worth more than £2 million for the chargeable period 1 April 2015 to 31 March 2016.”
The Annual Tax on Enveloped Dwellings (ATED) was introduced from 1 April 2013 to tackle the avoidance of stamp duty land tax (SDLT). The charge relates to residential property with a value over £2m and owned by a “non-natural person”, generally a company or a partnership with a corporate member. There was a great deal of consultation before the charge was introduced and in addition to ATED there were changes to SDLT and capital gains tax for such residential properties.
There is a flat rate of ATED for property valuation bands from over £2m to over £20m, the charge ranging from £15,400 to £143,750 for 2014/15 (£15,000 to £140,000 for 2013/14). The expectation was that the rates would increase by inflation each year.
On first reading of the Autumn Statement announcement, it seemed like an increase of one and a half times inflation; so with a rate of inflation of, say, 2% the increase in the annual charge would be 3%. However, on delving into the Policy Costings (on page 12) it was apparent that the increase is in fact a 50% increase in the actual charge plus inflation.
The historic and proposed rates are:
| Taxable value of the interest in the property on the relevant day | Annual chargeable amount2013/14 | Annual chargeable amount2014/15 | Annual chargeable amount2015/16 |
| More than £1m but not more than £2m(we assume this remains as previously announced) | n/a | n/a | £7,000 |
| More than £2m but not more than £5m | £15,000 | £15,400 | £23,350 |
| More than £5m but not more than £10m | £35,000 | £35,900 | £54,450 |
| More than £10m but not more than £20m | £70,000 | £71,850 | £109,050 |
| More than £20m | £140,000 | £143,750 | £218,200 |
In the first year of the ATED charge the government was pleasantly surprised by the amount collected from the new tax. This steep increase in the rates will give even more of a windfall – so is the revenue-raising potential the reason for the increase?
However, an increase of this magnitude in a tax not yet three years old creates uncertainty and worry for taxpayers and leads to a mistrust of the tax system.
The policy costing note anticipates that there will be some de-enveloping of property given this unforeseen increase but there are no reliefs or allowances available to assist with taking the residential property out of the wrapper, so the increase may have to be swallowed.
In addition to the ATED charge, residential property purchased by a non-natural person is charged a higher rate of SDLT, 15% for properties costing over £500,000 from 20 March 2014 (the threshold was originally £2m). This SDLT, calculated on the full value of the property, is unaffected by the Autumn Statement 2014 changes to SDLT on residential property.
