UK Taxation: An update on ATED & CGT matters affecting non-residents

There has been several changes in connection with UK residential property owned by non-residents since 1 April 2013 and this note highlights some of the main points in relation to ATED, ATED CGT and the extended CGT regime.

 

Annual Tax on Enveloped Dwellings (ATED)

 

You may be aware that ATED was introduced in UK Finance Act 2013 and is a new tax applying from 1 April 2013.

From 1 April 2013, ATED applied if the owner of the UK residential property was a company, a corporate partner in a partnership or a collective investment scheme and the property was valued over £2,000,000 as at 1 April 2012, or if the property was purchased for more than £2,000,000 after this date.

Changes are being introduced to reduce the property value to which ATED applies.

From 1 April 2015, ATED applies to property valued over £1,000,000 as at 1 April 2012 or for properties purchased for more than £1,000,000 after this date.

From 1 April 2016, ATED applies to property valued over £500,000 as at 1 April 2012 or for properties purchased for more than £500,000 after this date.

Valuations as at 1 April 2012 will be required to determine properties which fall within ATED with effect from 1 April 2015 and 1 April 2016.

Please note that exemptions from ATED might apply if the property is:

  • Let to a third party on a commercial basis
  • Open to the public for at least 28 days per annum
  • Part of a property trading business
  • Part of a property developers trade
  • For the use of the employees of the company, for the company’s commercial trade
  • A farmhouse, if it is occupied by a qualifying farm worker
  • A dwelling acquired by a financial institution in the course of lending
  • Owned by a provider of social housing.

 

 

The following ATED charges apply to property which are caught by ATED.

 

Property value ATED charge 1 April 2013   ATED charge 1 April 2014   ATED charge 1 April 2015  

£1m

    £7,000

£2m - £5m

£15,000

£15,400

£23,350

£5m - £10m

£35,000

£35,900  £54,450
£10m-£20m £70,000 £71,850  £109,050
£20m+ £140,000 £143,750  £218,200

 

 

From 1 April 2016, there will be an ATED charge of £3,500 per year for property worth between £500,000 and £999,999, or for property in this value range purchased after this date.

The property value will be reassessed every five years from 1 April 2012 i.e. on 1 April 2017.

 

Annual Tax on Enveloped Dwelling Capital Gains Tax (ATED CGT)

 

It is important to note that where a property is subject to ATED, all or part of the gain arising on the disposal may be subject to ATED CGT.

The ATED CGT rules came into effect from 6 April 2013 and the capital gains tax charge is based on 28% of the relevant gain arising.

Under the ATED CGT rules, only the increase in value from 6 April 2013 is likely to be taxable (unless an election is made to calculate the gain/loss based on cost rather than value as at 6 April 2013). If no election is made then any gain accrued prior to this date will fall under the old CGT rules and in certain circumstances there may be a charge under the UK anti-avoidance provisions.

In addition, only a proportion of the gain arising post 6 April 2013 may be chargeable if ATED did not apply for the whole period.

Valuations will therefore be required on 6 April 2013 in order to determine the chargeable gain that applies.

 

Extended Capital Gains Tax (CGT) regime

 

The new extension of CGT will apply to gains arising to non-residents on a disposal of residential property on or after 6 April 2015. Unless the taxpayer elects otherwise, it will however only apply to any increase in value after that date.

Certain non-residents are currently outside the scope of CGT altogether and therefore this extension of CGT to non-residents is therefore a significant change to the UK tax system.

The changes apply to non-resident individuals, non-resident trustees, personal representatives of a non-resident deceased person, certain non-resident companies and certain non-resident partners in partnerships.

The rate of capital gains tax rate will be 20% for non-resident companies, 18-28% for non-resident individuals (depending on the tax payers total UK income and gains in the relevant year) and 28% for non-resident trusts.

Unlike ATED there is no CGT exemption for residential property used as an investment, such as rental properties. Most non-resident companies holding rental properties will therefore be caught by the new CGT charge on a disposal.

As noted above, the rate of tax for non-resident companies under this new regime will however be 20%, as opposed to 28% under the ATED regime.

In contrast to ATED, the charge will apply to all residential property irrespective of value.

 

Interaction with ATED and other anti-avoidance provisions

 

The ATED regime will take precedence over the extended CGT regime for non-residents. The effect of this will be as follows:

  • Non-resident companies within ATED since 1 April 2013 are liable for ATED CGT at 28% on the disposal of UK property, but only on gains arising after 6 April 2013. There may also be a charge under the UK anti-avoidance provisions on gains accruing up to 5 April 2013.
  • Non-resident companies not yet within ATED will not be liable for CGT if the disposal takes place before 5 April 2015, but there may be a charge under the UK anti-avoidance provisions.
  • Non-resident companies which will become subject to ATED from 1 April 2015 will be liable for ATED CGT at 28% on disposal of UK property, but only on gains arising after 6 April 2015. There may also be a charge under the UK anti-avoidance provisions on gains accruing up to 5 April 2015.
  • Non-resident companies which will become subject to ATED from 1 April 2016 will be liable as follows:
  • If the property is disposed of in the year ended 5 April 2016 the gain will be subject to the extended CGT rate of 20%, but only on gains arising after 6 April 2015. There may also be a charge under the UK anti-avoidance provisions on gains accruing up to 5 April 2015.
  • If the property is disposed of in the year ended 5 April 2017 the gain will be subject firstly to the extended CGT rate of 20% but only on gains accruing in the year ended 5 April 2016 and secondly on the ATED CGT rate of 28% but only on gains accruing after 6 April 2016. There may also be a charge under the UK anti-avoidance provisions on gains accruing up to 5 April 2015.

Examples where the CGT charge applies under the UK anti-avoidance provisions include a non-resident company that has a UK resident participator or where the company is owned by an offshore trust which has UK resident beneficiaries/settlor.

 

Compliance matters

ATED

 

The draft Finance Bill 2015 has gone some way to simplify the compliance burden for companies claiming relief in 2015/16 and later years (RDRs – see below) but no changes have been made to the system where ATED is payable.

Previously ATED returns were required on an annual basis regardless of whether the company could claim relief or not;

  • The first ATED return for 2013/14 was due on 1 October 2013 and tax paid by 31 October 2013.
  • The return and tax payment for 2014/15 were both due on 30 April 2014.
  • For cases already within ATED the return and tax payment for 2015/16 are due on 30 April 2015.
  • For properties valued between £1,000,000 and £2,000,000 the return and payment dates have been relaxed. Returns must be filed by 1 October 2015 and payments must be made by 31 October 2015.
  • For newly acquired property the normal filing deadline is 30 days from acquisition.
  • For newly constructed property that deadline becomes 90 days from the earlier of the date on which the dwelling is deemed to come into existence for Council Tax purposes and the day on which the dwelling is first occupied.

Relief Declaration Return (RDRs)

 

Legislation in the draft Finance Bill 2015 will introduce a new type of return to cover all properties eligible for relief from ATED.

For each type of relief being claimed a relief declaration return must be filed in respect of one of more properties held for that chargeable period. No details will be required of the individual properties eligible for that relief.

A separate return will be required where a property is acquired during that year that qualifies for a different type of relief. The return will not require valuation details for relief properties. In addition a separate return will be required in respect of any property which ceases to qualify for a relief i.e. where ATED is due. So, if a property does not qualify for relief that has already been claimed in an RDR return a new RDR return must be made.

The overall result is that a business who holds properties eligible for a relief will generally only be required to deliver on relief declaration return a year for all properties covered by a particular relief instead of, as now, multiple detailed returns.

RDR return deadlines will be relaxed in 2015/16. Returns must be filed by 1 October 2015. For newly acquired property the normal filing deadline is 30 days from acquisition. For newly constructed property that deadline becomes 90 days from the earlier of the date on which the dwelling is deemed to come into existence for Council Tax purposes and the day on which the dwelling is first occupied.

 

ATED CGT

The return and tax payment deadlines for ATED CGT are 31 January following the tax year in which the property was sold.

 

If you need help with ATED, ATED CGT or RDR returns then please contact Giles Morison on 511770 or g.morison@brackenrothwell.com

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Please note that this memo should be used for guidance purposes only. Please contact your tax advisor for specific advice on case by case basis.

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