Partner Article

Property Taxes – Over extended?

Last week’s Budget introduced three phased changes for properties bought by a company or an arrangement that includes a company. These changes are:

• From 20 March 2014 Stamp Duty Land Tax (SDLT) at 15% for all properties over £500,000.
• New Annual Tax on Enveloped Dwellings (ATED) bands:

From 1 April 2015: Properties worth between £1 million and £2 million.

From 1 April 2016: Properties worth between £500,000 and £1 million.

• Capital Gains Tax at 28% will be charged on properties caught by the ATED charge:

From 6 April 2015: Properties in the £1 million to £2 million band

From 6 April 2016: Properties in the £500,000 to £1 million band.

Relief from all of these taxes (Higher SDLT, ATED and Capital Gains Tax) will be available where the properties are used for commercial purposes (including property rental and development).

HMRC estimate that bringing lower value properties into the regime will affect around 12,000 individuals, with around 8,000 qualifying for relief from the additional taxes. They also acknowledge that these individuals will be incurring additional administration costs because of the annual tax filing requirements.

The lower limits will also bring some very ordinary situations into the regime, particularly for properties in certain central city areas where £500,000 is not the price of a mansion. This might include:

• Properties acquired by parents for the use of their children while at university. Family wealth may be held in a company, used to make the purchase or, for overseas parents, the use of a company may be the normal route.
• Some buy to let properties are owned via companies. In addition to the extra annual burden, owners will need to be careful of lengthy void letting periods and certainly no occasional use of the property.
• Property developers generally use a company. Again, in addition to the extra admin burden, smaller developers will also need to consider periods where the properties are vacant or used by themselves during the period of development.
• Businesses which provide employee accommodation would have been unlikely to have properties over £2 million, but at £500,000 many will now have the extra administration costs.

For a relatively low tax take, it is hard to see the need to create that much extra work – even if it is just the accountants who will benefit!

This was posted in Bdaily's Members' News section by Baker Tilly .