Property tax changes for residential property held by companies

Property tax changes for residential property held inside companies – Annual Tax on Enveloped Dwellings (ATED), Stamp Duty Land Tax (SDLT) and Capital Gains Tax (CGT).

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Companies and other ‘non-natural persons’ which own residential property in the UK worth over £2 million have been subject to the annual tax on enveloped dwellings (ATED) since April 2013. This has been extended in this budget to properties worth more than £500,000.

ATED is an annual charge to tax based on the value of the property. It’s a kind of ‘mansion tax’ for residential properties held inside companies. There are exemptions from this, the most important of which are probably the exemption for third-party lettings and for property developers. From 1 April 2015, companies owning residential properties worth between £1 million and £2 million will fall into the ATED charge. The charge will be an annual charge of £7,000.

From 1 April 2016 a further band for properties worth between £500,000 and £1 million will come into existence with an annual charge of £3,500.

SDLT

The ATED position is broadly replicated for SDLT. Companies and other ‘non-natural persons’ which purchase residential property in the UK for £2 million or more suffer SDLT at a rate of 15%. From tomorrow, this threshold will drop to £500,000. There are exemptions from this mirroring the ATED reliefs, and including exemptions for third-party lettings and for property developers.

CGT

The third item in the triple whammy is the extension of the Capital Gains Tax (CGT) charge. Companies pay corporation tax on their gains, however where a company owns a residential property worth more than £2 million, a proportion of this could now be chargeable to capital gains tax. This charge has also been extended and from 6 April 2015 properties worth between £1 million and £2 million could have a proportion of their gains charged to capital gains tax at 28%. Properties worth between £500,000 and £1 million will fall into the regime from 6 April 2016.