HMRC collects £178 million in crackdown on properties owned by corporate structures

The HMRC collected £178 million via its Annual Tax on Enveloped Dwellings (ATED) last year. This is up by £62 million (53%) on the amount collected the previous year, says Collyer Bristow, a leading private client law firm.

Collyer Bristow explains that ATED was first introduced in April 2013 and is payable on high-value UK residential property owned via companies- so those held within a so-called corporate “envelope.” ATED is just one of a series of government measures designed to restrict the tax advantages enjoyed by those investing in UK residential property via complex corporate and offshore structures. Other recent changes include:

• A loss of IHT exemption for offshore companies from April 2017
• Increases to SDLT
• The introduction of capital gains tax for non-residents

The number of properties subject to ATED has increased substantially over the last three years. The tax originally applied to any property worth more than £2 million. It has been extended gradually, first to all properties worth more than £1 million in 2015/16 and from 1 April 2016, any worth more than just £500,000.  The statistics also show the extent to which ATED is a tax on property in London and the South East, with 88% of receipts relating to properties in London and 9% in the rest of the South East. Over half the receipts are from one London borough, Westminster.

James Badcock, Partner at Collyer Bristow, said “ATED appears to be having a significant tax raising effect but it is questionable whether the tax is fulfilling its original purpose of bringing properties out of the corporate veil. Relatively few properties appear to have been removed from corporate ownership.  This is likely to be because it is difficult to do so without incurring prohibitive capital gains tax and SDLT charges, and also because up to now corporate ownership has provided protection from inheritance tax (IHT).”

“This is about to change, with the Government bringing non-UK companies owning residential property within the scope of IHT for non-UK individuals for the first time from April this year.”  The Government is not offering any relief to those wishing to de-envelope, effectively trapping them within an increasingly costly structure, which it was a perfectly proper and accepted form of ownership when they purchased the property.  This already seems to be resulting in significantly decreased foreign investment in UK residential property.”

“Next year, properties will need to be revalued for ATED purposes.  This will result in properties moving up bands and significant increases in the tax taken.”