The tax currently applies to properties which qualify valued at over £1m. From 1 April 2016, however, this threshold is being reduced to include properties valued over £500,000. The changes are designed to discourage individuals from using companies or other ‘envelopes’ to hold UK residential property where the property is not used in a genuine commercial business through the use of an annual tax based on the value of the property. There are a number of valuable reliefs which can reduce the charge, and in some cases provide a complete exemption. Relief can be claimed, for example, where the property is let to a third party and isn't at any time occupied, or available for occupation by the owner or by anyone connected with the owner. The relief still needs to be claimed from HMRC.
The tax charges if applicable can however be quite substantial. The annual tax for a property valued at between £500,000 - £1m is £3,500. This increases to £7,000 for properties valued at between £1m - £2m and for higher value properties, higher charges are levied.
There are strict tax reporting deadlines so if you think you may be caught by this, please get in touch to discuss how we can help. It is also worth pointing out the properties which are subject to the ATED charge will also suffer higher Capital Gains Tax on the sale of the property.
Prior to April, there is still time to consider restructuring the ownership or "de-enveloping". Depending on the particular circumstances, replacement structures might include options like personal ownership or via a nominee entity or trust. Full advice should be sought prior to making any changes however, as restructuring may well give rise to other tax charges or unwanted consequences.