Posted by James Pearson on 04 Apr 2014
Residential Properties Owned by Companies: Tax Charges
In recent years, HMRC has been attempting to discourage the ownership of residential properties through limited companies and these attempts have centred around three tax charges:
- Increased rates of Stamp Duty Land Tax for companies purchasing residential property.
- The Annual Tax on Enveloped Dwellings (ATED) charged on residential properties owned by non-UK companies.
- Capital Gains Tax charged at 28% on the sale by a company of any property caught by the ATED charge.
Last month’s Budget contained provisions to expand the scope of these tax charges by lowering the property value threshold at which these charges come into effect from £2,000,000 to £500,000. In the case of two of these taxes, the expansion will be in two phases.
ATED Bands for Residential Properties
From 1 April 2015, a new ATED band will be introduced for properties worth between £1,000,000 and £2,000,000. Properties falling within this band will be subject to an ATED charge of £7,000.
From 1 April 2016, a new ATED band will be introduced for properties worth between £500,000 and £1,000,000. Properties falling within this band will be subject to an ATED charge of £3,500.
There are various reliefs available from ATED, however, if your company owns a residential property that falls within this legislation then it must make an annual ATED return to HMRC by the 30 April each year, even if no tax is payable.
Capital Gains Tax for Residential Properties
Capital Gains Tax will be charged at 28% on properties that are subject to the ATED charge, meaning the extension of this provision will match that of the ATED, covering properties worth over £1,000,000 from 1 April 2015, and properties worth over £500,000 from 1 April 2016.
The charge will only apply to the proportion of the capital gain that accrues after the relevant dates. The legislation governing this has yet to be published, but it seems that there will be some significant complexities in required calculations.
Residential Properties Stamp Duty Land Tax
From 20 March 2014, Stamp Duty Land Tax will be charged at 15% for properties worth over £500,000.
There are already exemptions in place to exempt properties that are used for genuine commercial purposes (such as property development or lending to unconnected third parties) and these will continue to apply, but the lowering of the value threshold will bring more scenarios within the scope of these charges.
For example, if a company owns the property to provide accommodation for employees, the charges may not have been a consideration when only applying to properties worth £2,000,000 or over, but now may become a concern. Care also needs to be taken even if properties are held by companies to be let commercially to third parties if there are significant periods when there is no letting.
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