With the publication of the annual tax on enveloped dwellings return due this week, and Scotland introducing a property tax, property ownership can be expensive business
Coutts have reported that UK property, despite being widely seen as over-valued, may rise 8% this year, and so real estate levies remain firmly in the sights of treasury taxmen. With the publication of the Annual Tax on Enveloped Dwellings (ATED) return this week, purchasers of homes at £2m and over have been given a fresh reminder of one such tax to be considered.
By way of reminder for anyone who has forgotten about last year’s new taxes (or who is just burying their head in the sand about them) the ATED will require companies and other non-natural persons holding residential property to cough up an annual charge of between £15,000- 140,000. Eye-watering for those of us with flats worth little more than the top rate; small fry for some with deep pockets and long driveways.
The ATED was initially marketed as a disincentive to Stamp Duty Land Tax avoidance – the route whereby a property purchased in the ‘envelope’ of a company would be liable to (at most) 0.5% stamp duty rather than the 4% due when acquired directly. However, the acquisition of a property-holding company comes with all sorts of corporate liability-related pitfalls which are not at issue when buying directly, and was therefore rarer than perhaps the Treasury assumed.
In fact, a much more common objective for property enveloping is inheritance tax avoidance. However pressing the need for succession planning may be, the prospect of 4% tax on purchase is nothing compared to 40% at death – a 40% easily avoided with a deathless corporate proprietor.
Another key motive for enveloping is confidentiality. Armed with some cash and an inquisitive nature, anyone can find the proprietor of a given property from the Land Registry. A neat way to hold off paparazzi and snoopers is to conceal the proprietor’s identity behind a corporate cloak. ATED does not spell the end of this though, as owners are still free to use ‘nominee’ companies to hold their property’s legal interest only, while they retain the beneficial interest. Such arrangements will not be subject to the new tax.
Wealth taxes may be a late arrival to these shores, but are common the world over – and that’s essentially what ATED is. Many high-net-worth homeowners will barely bat an eyelid, with most of our clients maintaining their existing structures. Instead, it might be another recent development north of the border that plays on the mind of prime buyers.
Among the cheering spectators at Wimbledon on Sunday was Alec Salmond, whose devolved administration made headlines last week with the first new exclusively Scottish tax in over 300 years. Surprise, surprise, it’s a property tax! One which abolishes stamp duty, but replaces it with a system potentially more expensive for top end buyers. Pity the Scottish buyer who has the taxmen of Holyrood as well as Whitehall to consider.