ATED / SDLT and the 2014 Budget – What does it really mean ?

I was reminded of how complex tax law is almost immediately after the recent UK budget announcements.
 
There are invariably winners and losers from overly complex tax law, on one hand it makes it harder for tax avoidance but equally can be disruptive for taxpayers in general and makes it very hard to assess a fair amount of tax.
 
In the middle of the various budget documents were announcements regarding the changes to the enveloping charge or ATED for short. These include not only a lowering of the threshold at which the ATED charge bites, to £500,000 but also to the application of the 15% Stamp Duty Land Tax rate to properties affected by these changes.
 
What are the ATED changes and when do they come into effect?
 
As the law stands now the ATED charge only applies to properties worth in excess of £2m.
 
From 1 April 2015 the ATED charge will be applied to properties worth more than £1m. The annual charge for properties worth between £1m and £2m will be £7,000.
 
From 1 April 2016 the ATED charge will be applied to properties worth more than £500,000. The charge for properties worth between £500,000 and £1m will be £3,500.
 
Perhaps the changes indicate that the amount of money raised from the ATED charge was simply not enough. Reducing the levels at which a tax is charged naturally widens the tax base and increases tax yields.
 
The property value thresholds are not subject to any inflation adjustments so as the price of housing stock increases in time so the greater numbers of properties there will be that are caught by these changes.
 
This leads to a conclusion that what was originally classed as high value properties for ATED purposes is steadily being reduced to what many would consider to be average house prices for the greater London area. If house price inflation is assumed at 15% per annum then a property worth £500,000 in April 2016 may only be worth just under £380,000 today.
 
This will mean that there will be far more properties subject to ATED from April 2015. In some cases there may well not be immediate funds available to pay the ATED charge which will present its own challenges!
 
15% SDLT rate
The 15% rate was also extended from the day after budget day to certain residential properties bought by non-natural persons, ie companies, for more than £500,000.
 
We have already seen evidence of concerns that the 15% rate applied to all properties acquired by companies from the day after budget date and this could have led to some purchases being aborted. It has since been clarified that properties acquired for letting should not be subject to the 15% rate; the existing exemptions for genuine businesses are expected to remain which will be crucial for corporate acquisitions of property.
 
photo credit: Outlaw_Pete via photopin cc

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