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How much tax will you have to pay on your home?

27th June 2014

How much tax will your home cost you?

You might want to think twice about buying properties through a company.

A range of measures have been introduced by the government in order to curb the ownership of residential properties through companies – previously an effective tax avoidance technique.

These take the forms of annual taxes and special tax rates for properties that are bought by so called ‘non-natural persons’ – Companies, Unit Trusts & Corporate Partnerships

The tax changes are as follows, and currently apply to properties worth over £2m, other than those buildings that are genuine commercial businesses (property rental, development) –

  •  Stamp Duty Land Tax (SDLT) increased to 15% (applicable to £500,000+ properties from 20 March 2014 onwards)
  • Capital Gains tax is charged at 28%
  • An annual tax on enveloped dwellings (ATED)

http://www.hmrc.gov.uk/budget2013/tiin-1182.pdf

 

 Stamp Duty Land Tax (SDLT)

If an individual was to buy a property worth £2m, they would face SDLT of 7% (£140,000), less than half of that charged to a company buying the same property!

The 15% rate applies to properties worth £500,000+ from 20 March 2014 onwards.

CGT

Currently, tax payable when company sells a property is charged at the normal corporation tax rate (20%/21%). Individuals will pay at 28% if they are a higher rate taxpayer, so these measures close that loophole.

Annual Tax on Enveloped Dwellings (ATED)

The Annual Tax on Enveloped Dwellings (ATED) is a tax payable by companies that own high value residential property (a ‘dwelling’). It came into effect from 1 April 2013.

You’ll need to complete an ATED Tax Return for your property if all of the following apply:

  • it’s a dwelling
  • it’s situated in the UK
  • it was valued at more than £2 million on 1 April 2012, or on the date you bought it, if later
Value of estate (before inheritance tax is deducted)Proportion of all estates in England and WalesProposed Fees
Up to £50,000 or exempt from requiring a grant of probate58%£0
Exceeds £50,000 but does not exceed £300,00023%£300
Exceeds £300,000 but does not exceed £500,00011%£1,000
Exceeds £500,000 but does not exceed £1m6%£4,000
Exceeds £1m but does not exceed £1.6m1%£8,000
Exceeds £1.6m but does not exceed £2m0.3%£12,000
Above £2m0.5%£20,000

 

Announcements in the Budget 2014 aim to reduce the threshold from £2m to £500,000 over the course of two years.

From 1 April 2015, properties valued between £1m and £2m that fall under ATED will face a charge of £7,000. From 1 April 2016, that falls to £500,000, with an annual charge of £3,500.

The ATED return is separate from any other filing required by HMRC, and must be submitted within 30 days of coming into the ATED charge, as well as 30 April of the chargeable period (if you fall under the charge on 1 April).

http://www.hmrc.gov.uk/ated/basics.htm

If you think these rule changes apply to you, please consult a tax advisor or chartered accountant.