Corporate Ownership of High Value Dwellings

Corporate ownership of residential dwellings worth over £2 million is now subject to a three-pronged attack as a result of the Finance Act 2013. The new regime will consist of a 15% rate of SDLT payable on acquisition, an Annual Tax on Enveloped Dwellings (“ATED”) and a CGT rate of 28% payable on disposals of qualifying property.

Those qualifying for relief against aspects of the regime, including property trading businesses, must actively claim it but do not have to demonstrate a two year trading history, as was planned under the draft legislation. The ATED will increase annually by reference to the Consumer Price Index and returns must be submitted at the start of the financial year. A property which has at any time been subject to the ATED charge will be subject to CGT, but this will only be payable on gains made after 6 April 2013.

In response to the perception of widespread abuse of the SDLT regime, the government’s consultation document stated that its objective was to ensure the fair taxation of residential property. Notwithstanding the government’s failure to recognise that heavy taxation of property is itself driving sophisticated methods of avoidance, onerous policies such as this will prove an effective deterrent. Corporate enveloping may remain an attractive option in order to preserve anonymity or to protect a wider tax position. Equally, the decision to de-envelope will have to balance whether the CGT liability is preferable to the IHT risk arising from holding property personally.

The taxation of wealth has become increasingly palatable to the electorate and it is notable that the original name for ATED was the Annual Residential Property Tax, an ideal title for any future ‘mansion tax’. The ATED regime will satisfy those wishing to tax a wealthy class and will no doubt benefit accountants and tax lawyers alike. Whilst politically expedient, this headline policy does not address the structural problems of the housing market – high prices, lack of supply and insufficient funding persist.

PLEASE NOTE: this briefing note contains information about current legal issues and is only intended as a general statement of the law – it does not give legal advice. No action should be taken in reliance on this note without specific legal advice.

For further information please contact:

nick-green-newNick Green
Partner, Head of Property
Telephone: +44 20 7845 7402