ATED – Introduction
A rather beige Autumn Statement also included a rather beige announcement that the Annual Tax on Enveloped Dwellings (“ATED”) rates will increase.
The ATED charges for properties in each band annually increase in accordance with the previous September’s Consumer Price Index (CPI). The September 2023 CPI marked a 6.7% increase.
In addition, with little fanfare, ATED also celebrated its tenth birthday this year.
What is ATED?
ATED was introduced as part of the first sortie by Chancellor George Osborne in his assault against bricks and mortar. It was accompanied by its wing man, the 15% SDLT super charge for companies (it probably had a catchier name) back in 2013.
The reason for introducing ATED was two fold. Firstly, it worked with the 15% rate to reduce the use of corporate enveloping to avoid SDLT
- The 15% super rate reduced the popularity of new enveloped properties by applying, what was then, a penal rate of SDLT to companies acquiring dwellings; and
- ATED – applied an annual charge to existing corporate envelopes
Secondly, ATED was designed to discourage the use of enveloping properties (and making them excluded property) to mitigate IHT for non-doms.
Both ATED and the 15% effectively only applies where a property was held by a company and there was no commercial activity.
Originally it only applied to dwellings valued at over £2m, but that was soon dropped to £500k as the government realised what a cash cow ATED could be.
The new rates
The new rates are as follows:
The updated rates, effective from April 1, 2024, have been announced as follows:
| Property value band | Annual charge |
| £500k-£1m | £4.4k |
| £1m – £2m | £9k |
| £2-5m | £30.6k |
| £5-10m | £71.5k |
| £10-20m | £143.6k |
| Over £20m | £287.5k |
In 2021-22, the total receipts from ATED were £119m. This was up 7% from the previous year.
In a climate of high inflation, as a revenue raiser, ATED goes from strength to strength.
But should it be scrapped?
In 2017, the IHT rules were amended such that where a non dom has an interest in UK residential property then that could no longer be excluded property. This rendered the traditional IHT planning, holding UK residential property through non-UK structures, largely obsolete.
As such, any aspect of ATED that was driven by IHT has now bitten the dust.
But why scrap it I hear you say? You said that it also assists with SDLT chicanery.
Of course.
However, it seems somewhat perverse that the manner in which we prevent a purchaser from obtaining an SDLT saving is to charge an annual amount over the course of the period of ownership.
This bears no resemblance to the SDLT charge being avoided – as the annual charge will be paid for whatever number of years the property is owned and SDLT does not care whether a property is owned for 50 years of 50 days.
| Consideration | SDLT on purchase | Annual ATED amount | Years required for ATED to cover the SDLT |
| £5m | 511,250 | 30,550 | 16.73 |
| £10m | 1,111,250 | 71,550 | 15.53 |
| £25m | 2,911,250 | 287,500 | 10.13 |
This doesn’t, for instance, even take into account whether the purchaser is non-UK resident or subject to the additional property surcharge.
So even if the property is held for the requisite years, the taxpayer has effectively used interest free credit to pay their tax.
A better way?
A better idea would be simply to charge SDLT on the purchase of property rich companies.
ATED only picks up residential property used as dwellings. But by using the ‘property rich company’ definition from the Non-resident CGT legislation this could also pick up residential property not held as dwellings and commercial property.
After all, there is no real justification for charging SDLT on the acquisition of direct interests in this type of property, but not on the acquisition of shares in companies that hold them.
Indeed, something so obvious was proposed when SDLT was first being conceived – or should that be gestated – prior to its introduction in Finance Act 2003.
But that wasn’t the only time this ‘staring you in the face’ solution was considered.
Back in the Pre-Budget Report in 2007, it was announced that the then Labour government was considering a change of law:
PBR 2007
5.98 In addition, the Government believes that the use of special purpose vehicles to reduce stamp duty liability on high value residential property is unfair to the compliant majority who pay SDLT on the purchase of such property in the UK. The Government will also consult interested parties later this year on the issues involved in implementing a measure to address this issue.
This resulted in a consultation that was released a month or so later in December 2007 which stated:
The Government wants to explore the issues involved in creating a charge on SPVs used for high value residential property. The charge, which could be known as the Indirect Charge, would approximate to the SDLT that would be due if the property contained in the vehicle had been transferred directly to a new owner as a land and property transaction as opposed to a transaction in shares. This would remove any SDLT advantage from putting the property in an SPV compared with the direct transfer of UK residential property
Broadly, it was proposed that the charge would apply where ‘three tests’ were satisfied:
- at least 75% of the SPV must be acquired;
- the company needed to be controlled by 5 or fewer persons (individuals or companies);
- 90% of the SPV’s assets were made up of UK residential property
The Government proposed to impose the charge on vehicles worth £1m or more and to set the tax rate at 4 per cent in line with what was then the top rate of SDLT for residential property transactions (a top rate which seems extraordinary these days!)
I cannot find the results of this consultation and the proposals seem to have disappeared without trace (perhaps we can blame the financial crisis?)
However, I am not suggesting that those would be the criteria of any new charge. Indeed, we now have a definition of ‘property rich’ for the purposes of the Non-Resident CGT regime. It would be sensible to use this.
Further, I can see nothing as a matter of principle as to why such a charge should only apply to residential property. Why not to interests in companies that are rich in commercial property? After all, one pays SDLT on direct interests in commercial property.
The other side
For balance, I have seen other commentators on tax policy suggest that ATED should be ratcheted up – I guess essentially to increase the tax that is raised from those with the broadest shoulders.
However, I would still say that ATED approaches the ‘enveloped’ company stamp problem in a barmy manner.
If one wants to raise stamp duty from transactions in property rich companies then extend the tax to property rich companies.
If we are trying to tax economically similar transactions then it seems sensible they are taxed using the same mechanisms.
ATED is a rubbish tax. And increasing the amount it raises doesn’t change that.
ATED – Conclusion
In my view, ATED has had its day. It is a zombie tax. It’s rubbish. It should be replaced with a SDLT charge on the acquisition of shares in property rich companies.
The overall aim might be an even more ambitious one, to ensure that there are no taxation differences in holding a property directly or through a company.
This would certainly, in my view, be a start on simplifying the tax system.
If you have any queries about this article on ATED, or tax matters more generally, then please get in touch.