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fru-gal

Ated And Sdlt Changes - How Are They Affecting The London Market?

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So, these new taxes on properties bought through companies should have an effect on the market? Anyone read anything about how these are affecting the market/sentiment? They must be doing some damage and ATED is going to drop to £500k in 2016. Am I right in thinking that if they buy through a company they are now exposed to SDLT (7-15%), ATED (£3,500+ per year) and CGT (28% unless renting out the property continually for 3 years which exposes them to Corporation tax (20%+)) and if they buy personally they are exposed to SDLT (4%+) and IHT (40% over £325k)?

Just seen this; http://www.fctaxpartner.com/news-views/latest-news/ated-and-sdlt-update-for-not-so-expensive-properties/

ATED and SDLT update – for not so expensive properties!
02/07/2014

The March 2012 Budget introduced a higher SDLT charge for residential properties acquired by non-natural persons including corporate entities, partnerships with a corporate member and collective investment schemes. At the same time, an annual charge known as ‘ATED’ was introduced with effect from 1 April 2013. The changes only affected ‘high value’ UK residential property worth over £2m on 1 April 2012 (or the date of acquisition, if later) so many owners were unaffected.

Unexpectedly, it was announced in the 2014 Budget that the threshold for SDLT purposes would fall overnight from £2m to £500,000. From 20 March 2014, all contracts exchanged and acquired by non-natural persons above this £500,000 limit are subject to 15% SDLT unless the property is to be used for certain trading or commercial purposes that qualify for relief. The property must then continue to be used for a qualifying purpose for a period of three years to avoid a claw-back of relief.

The ATED threshold is also being reduced. From 6 April 2015, the ATED threshold will include properties worth more than £1m and from 6 April 2016 it will be extended to include properties worth more than £500,000. The valuation will be applicable as at the later of 1 April 2012 or the date of acquisition. Similar relief from the ATED charge will apply if the property’s use qualifies but the relief must be claimed on an annual basis by completing an ATED return. The ATED rates are:

Value of property on 1 April 2012 or date of acquisition if later

Annual charge (£)

Over £500,000 to £1m (from 1 April 2016)

£3,500

Over £1m to £2m (from 1 April 2015)

£7,000

Over £2m to £5m

£15,000

Over £5m to £10m

£35,000

Over £10m to £20m

£70,000

Over £20m

£140,000

Any property that is liable to ATED during its period of ownership and which is disposed of for more than the starting threshold will be subject to ATED-related capital gains tax. The ATED-related gain is taxed at 28%. Owners of properties that have both ATED and non-ATED periods will find they have to do complex calculations to work out the gains chargeable at 28% and to corporation tax (if owned by a UK company).

It is recommended that anyone intending to acquire residential property using a corporate entity considers the SDLT and ATED implications beforehand.

Edited by fru-gal

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I am not an expert but I think that you have got the mechanics exactly right. I got a bit excited when I re-read something that I received that went through the details until I thought about it a bit more.

There is quite an easy way around it. Owner A and Owner B can exchange ownership of homes held in the names of BTL companies that they own and then charge each other a fair market rent. Someone like a private bank can put the "swaps" together and charge each side a 2.5% structuring fee.

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I am not an expert but I think that you have got the mechanics exactly right. I got a bit excited when I re-read something that I received that went through the details until I thought about it a bit more.

There is quite an easy way around it. Owner A and Owner B can exchange ownership of homes held in the names of BTL companies that they own and then charge each other a fair market rent. Someone like a private bank can put the "swaps" together and charge each side a 2.5% structuring fee.

Well, it can't be that easy to get out of as it has apparently raised far more tax than expected. See here;

http://ctatax.uk.com/ated-proves-red-letter-day-revenue/

Edited by fru-gal

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Well, it can't be that easy to get out of as it has apparently raised far more tax than expected. See here;

http://ctatax.uk.com/ated-proves-red-letter-day-revenue/

That is a lot of money.

At the very high end, I don't think that the tax issues matter that much. In my opinion a billionaire who spends £3.75 million in stamp duty and £140,000 a year in occupancy taxes on a £25 million house doesn't worry about it as much as people lower down the food chain where the smaller numbers are a much higher percentage of income and net worth.

It takes time for the finance guys to come up with structures to circumvent taxes and regulations. I could be wrong but I guess that they will arbitrage the total tax take lower over time.

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That is a lot of money.

At the very high end, I don't think that the tax issues matter that much. In my opinion a billionaire who spends £3.75 million in stamp duty and £140,000 a year in occupancy taxes on a £25 million house doesn't worry about it as much as people lower down the food chain where the smaller numbers are a much higher percentage of income and net worth.

It takes time for the finance guys to come up with structures to circumvent taxes and regulations. I could be wrong but I guess that they will arbitrage the total tax take lower over time.

I think the main thing is that they avoid IHT so if they have to pay SDLT, ATED and possibly CGT that is better than paying IHT. Also, like the article says, for the super rich the point of buying through a company is not to mitigate tax but to keep anonymity. If they can find a way of applying IHT to properties bought through a company that would probably make a big difference.

But I suppose the super rich are a very small percentage of the problem as most people aren't looking to buy £5 million + properties. If buyers lower down the scale which make up the bulk of foreign investors (e.g. Chinese buying in the lower end £500k+) are put off by the taxes then imo that is enough to start a fall.

Edited by fru-gal

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I am not an expert but I think that you have got the mechanics exactly right. I got a bit excited when I re-read something that I received that went through the details until I thought about it a bit more.

There is quite an easy way around it. Owner A and Owner B can exchange ownership of homes held in the names of BTL companies that they own and then charge each other a fair market rent. Someone like a private bank can put the "swaps" together and charge each side a 2.5% structuring fee.

I think that would be deemed a scheme to evade and leave both liable to all the tax and penalties too.

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I think that would be deemed a scheme to evade and leave both liable to all the tax and penalties too.

If everything is done at fair market value, the dividing line between tax evasion (illegal) and tax avoidance (legal but sometimes not palatable) is a difficult one to anticipate.

As is often the case, the more complex and punitive (in the eyes of those on whom the tax is imposed) the tax regime, the more money accountants, bankers and lawyers earn at the expense of the rest of the economy.

This inefficiency is why I am in favour of a flat tax at 15% on gross income from all sources (both private and public) on corporate and personal income with no deductions and a flat 1.5% annual property tax based on the most recent transaction price.

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That is a lot of money.

At the very high end, I don't think that the tax issues matter that much. In my opinion a billionaire who spends £3.75 million in stamp duty and £140,000 a year in occupancy taxes on a £25 million house doesn't worry about it as much as people lower down the food chain where the smaller numbers are a much higher percentage of income and net worth.

It takes time for the finance guys to come up with structures to circumvent taxes and regulations. I could be wrong but I guess that they will arbitrage the total tax take lower over time.

It is more about houses from 2 to 10 mills, which are bought as an investment and left empty ...

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