UK Budget – Residential Property – Changes To ATED/ CGT

March 19, 2015


The Chancellor confirmed in his budget yesterday the extension of the Annual Tax on Enveloped Properties (ATED) to lower value properties, effective 1 April 2015.

ATED is the annual tax payable by non-natural persons holding high value residential property. A non-natural person is a company (both UK and overseas); a collective investment vehicle; or a partnership in which one or more members is a company.

ATED has applied to properties over £2 million since April 2013. Effective 1 April 2015, ATED will now apply to residential properties with a market value in excess of £1 million.

In addition, the ATED annual tax charges are being increased generally by more than 50 percent as follows:

Taxable value of the interest in the property on the relevant day Annual chargeable amount

Annual chargeable amount

Annual chargeable amount

More than £1m but not more than £2m 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

All non-natural persons are obliged to make an ATED return. However, there are various reliefs which may mean that ATED is not payable.

ATED returns must be submitted, and the charge paid, by 30 April each year; however, non-natural persons that qualify for ATED in 2015/16 as a result of the extension have a concession for submitting their return by 1 October 2015 and making the payment by 30 October 2015.

The legislation gives relief to non-natural persons engaged in the business of letting, trading or developing properties. However, this relief is not available if certain non-qualifying persons occupy the property (persons connected to the beneficial owner).

A simplified tax return will be available for those non-natural persons with no tax liability, with the normal due date of 30 April 2015 extended to 1 October 2015.

Capital Gains Tax

Where ATED applies, ATED related capital gains tax (ATED CGT) is payable.

ATED CGT applies to disposals of high value UK residential property by non-natural persons, whether resident or non-resident in the UK.

The tax rate on ATED CGT is 28 percent. There is an automatic rebasing of the cost of the property to the open market value as at 6 April 2013, unless the taxpayer elects otherwise.

Capital Gains Tax on Residential Property Extended to Non-Residents (NR CGT) from 6 April 2015

Draft legislation to introduce NR CGT was published on 10 December 2014. It is expected to form part of the Finance Act 2015, with effect from 6 April 2015.

The new NR CGT will apply to all disposals post 6 April 2015 of all UK residential property “used or suitable for use as a dwelling” held by certain non-residents.

The tax will apply only to gains occurring and accruing after 6 April 2015.

Taxpayers will have the option to pay tax on either:

  • the whole gain,
  • the gain time apportioned to that period post 6 April (unless ATED CGT applies), or
  • the gain calculated by substituting the 6 April 2015 value for cost.

Unlike ATED CGT, the NR CGT will apply to all residential dwellings regardless of their value and there will be no relief for lettings businesses.

It will apply to most non-residents, including non-resident individuals, offshore trusts and close non-resident companies. Non-resident companies and funds which are not close companies are likely to be excluded from the new tax.

The capital gains tax rates will be as follows:

  • 18 percent or 28 percent, according to the taxpayer’s marginal rate of tax
  • 28 percent for gains made by offshore trusts
  • 20 percent for gains made by non-resident close companies

Where both ATED CGT and NR CGT apply, ATED CGT takes priority.

The exemption relating to Principal Private Residence will be amended to be available in appropriate circumstances to relieve NR CGT.

How can we help?

The holding structures of all residential properties with a market value of £500,000 or more should be considered now.

We would be delighted to assist in assessing your property holding structure and consider the best solution going forward.

It should be noted that a compliance return will need to be submitted to HMRC in order to claim the available exemptions. Where exemptions do not apply, it may be worth exploring the options available prior to April 2015. We are able to assist in providing alternative arrangements.