The Government announced a number of key changes in respect of the UK property market in the recent Budget (19 March 2014). For commercial entities purchasing residential property, there are three fundamental amendments:
1. Stamp Duty Land Tax (“SDLT”)
The Budget brings a substantial lowering in the 15% tax band of SDLT. Previously, the 15% rate applied to purchases by non-natural persons (i.e. companies or partnerships with a corporate member) of residential property priced over £2,000,000. However, from 20 March 2014, this level of tax liability will be levied on purchases worth over £500,000.
It is important to note that the extension of the 15% rate will take effect for those transactions where the effective date is on or after 20 March 2014. Therefore, save for some exceptions (e.g. contract variations, assignments, etcetera), where a contract is entered into on or before 20 March 2014 but completion occurs following this date, the previous tax rates apply.
2. Annual Tax on Enveloped Dwellings (“ATED”)
A possible second hit to a corporate purchaser’s wallet is the introduction of two new bands of tax within the ATED regime.
Currently, ATED is payable on dwellings valued on 1 April 2012 (or on acquisition if later) at more than £2,000,000 owned by non-natural persons, with the chargeable amount based on four bands. However, two new bands of ATED will be introduced in stages, bringing the value at which ATED is chargeable down from £2,000,000 to £500,000 by 1 April 2016.
From 1 April 2015, properties valued at over £1,000,000 will be brought into the charge (annual amount chargeable being £7,000), followed on 1 April 2016 with the introduction of the ATED on those properties over £500,000 (with annual charge being £3,500). As is now, the annual charge for each of these new bands, will increase inline with the Consumer Price Index.
One outstanding issue to be clarified is what the relevant valuation date will be in respect of the properties: i.e. whether it will be the same as the existing regime (the property value on 1 April 2012 or at the acquisition if later) or if this will be altered.
Nevertheless, the exceptions which currently apply to ATED will remain. Therefore, properties which are either (a) acquired in the course of a property development business, (b) let out to 3rd parties as part of a property rental business, or (c) held by a firm in its role as a trustee of a settlement are exempt from ATED.
3. Capital Gains Tax on Enveloped Dwellings (“CGTED”)
Finally, for those companies which have not yet paid enough taxes on their property, there are also changes to the level at which CGTED will be charged on disposals of properties which are liable to ATED.
The 28% CGTED will also apply to those residential properties within the two new ATED bands effective from the same dates: from 1 April 2015, CGTED will be levied on properties valued over £1,000,000 and then on 1 April 2016 for those valued over £500,000.
Given these changes, what’s a company to do? It is likely that the alterations to ATED and CGTED will not impact the majority of corporate property owners given the three exemptions. As for SDLT, while in some cases it may be an option to purchase in the name of a person rather than a company, this will expose the property to inheritance tax. It seems that the old saying is true: the only sure things in life are death and taxes.
For information regarding Edwin Coe and the Property and Construction group please visit https://www.edwincoe.com/services/property.asp.
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