The inevitable creep of taxation

I sometimes think that taxation is similar to dry rot. With the latter, you will first notice a fungus or two in a far corner of the property. You will resolve to do something about it and then go off and do something more interesting. Meanwhile, the dry rot spreads, unseen. A few years later, it suddenly makes its presence felt and costs you a fortune. Many taxes behave in a similar way.

The snappily titled Annual Tax on Enveloped Dwellings, or ATED for short, is a fine example of such a tax. I doubt that you recall its creation in the 2012 Budget, or when it was first introduced on 1st April 2013. After all, what had it got to do with you? It was targeted at those oligarchs, and other wealthy individuals from abroad, who had taken to owning prime London residential property but buying via a company, so avoiding Stamp Duty Land Tax. The entry value for qualifying for ATED was set at £2m. All in all, hardly relevant to the rural North East, surely?

But, just like the dry rot, ATED has spread. First, the qualifying limit was reduced to £1m and now it is set to be reduced on the 1st April to £500,000. The annual tax charge for properties in the lowest band (£500k – £1m) is £3500. This doubles for properties worth between £1m and £2m, and heads on up from there. The relevant valuation date is set at 1st April 2012, or the purchase date if after that.

ATED only applies to residential properties that are owned, or partly owned, by a “non-natural person”, which is defined as a company, a partnership with a corporate partner or a collective investment scheme. However, this may well now include farm and estate properties which are held in companies.

To be fair, ATED was never intended to apply where the house is a genuine business asset, so there are a number of exemptions that may very well apply to rural property, although they tend to come with stringent conditions. One condition is that the exemption must be claimed on an annual basis.

If you are affected by ATED, it may be possible to avoid the levy by restructuring the business. However, this could very easily create a separate tax event, so do take professional advice before taking action. Perhaps this unwanted tax could act as a trigger to undertake a complete review of the business structure to ensure that it is still the best option, whilst addressing potential succession issues at the same time.

If you would like any further information or to discuss any rural related matter, please contact Tom Wills, head of the agriculture & estates department at Sintons.

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