Introduction Background
465.At Budget 2012 it was announced that an ‘annual charge’ on residential property owned in structures where stamp duty land tax (‘SDLT’) may not be paid on a future sale was to be introduced. The ‘annual charge’ was to be consulted on over the summer with a response to that consultation and draft legislation available in the Autumn.
466.That consultation has been completed and the response document and the draft legislation for the ‘annual charge’ published in December 2012 and January 2013. The ‘annual charge’ is to be known as the annual tax on enveloped dwellings (‘ATED’).
467.The ATED will be payable by certain non-natural persons that own interests in dwellings valued at more than £2 million. This tax will come into effect on 1 April 2013. It is an annual tax, and returns and payments will be required annually. Returns and payment will usually be due on 30 April, but for the first year returns will be due on 1 October 2013 and payment by 31 October 2013. The amount of tax payable will depend upon which of the fixed bands the dwelling is within.
468.The measure is part of a package of measures designed to ensure that individuals and companies pay a fair share of tax on residential property transactions and to reduce avoidance. Its aim was to dis-incentivise the ownership of high value residential property in structures that would permit the indirect ownership or enjoyment of the property to be transferred in a way that would not be chargeable to SDLT.
469.As part of the package, Finance Act 2012 package, Finance Act 2012 introduced a 15 per cent rate of stamp duty land tax on the acquisition by certain non-natural persons of properties costing more than £2 million. That Act provided only two exclusions from the higher rate charge; for companies acting solely in their capacity as trustees, and for property developers with a 2 year trading history.
470.The scope of the 15 per cent rate was included as part of the consultation on the annual tax on enveloped dwellings. In response to the consultation a number of reliefs are to be introduced in ATED and also further reliefs into the SDLT legislation. Where possible the two reliefs should operate in tandem; so if the 15% of SDLT is paid on an acquisition then the property will be within ATED. In particular there are to be reliefs for; property rental businesses, property developers, property traders, trades that exploit a dwelling to generate income by providing access to a significant part of the interior, dwellings used to house employees or partners with a limited interest in the company or partnership, farmhouses, charities, social landlords, diplomatic property and sovereign and public bodies.
471.Relief will only apply if the property continues to satisfy the relevant qualifying conditions throughout the period of ownership. It is possible that a property could move into and out of the charge though out its ownership.
472.The intention of the measures is to stop or reduce the number of properties that will enter such complex ownership structures other than where the property is used in a genuine business (or owned by a specific category of person). For those who choose to continue to hold their property in such a manner, and are not relieved, there is to be a cost. Taken together with the introduction of the SDLT changes in Finance Act 2012 (and the changes in Finance Act 2013) the ATED will result in a reduction in the number of high value properties owned in such structures.
473.The annual tax on enveloped dwellings is a new tax and therefore it requires a set of rules regarding returns, enquiries, compliance powers in much the same way as other regimes administered by HMRC. The scheme adopted is based on the stamp duty land tax self-assessment regime, and that legislation is found primarily in Schedule 10 Finance Act 2003. This allows annual tax on enveloped dwellings to use established procedures which will be familiar to many tax and legal practitioners and HMRC. The legislation will be fully balanced by rights of appeal to the independent tax tribunals and when appropriate to the relevant lands tribunal.
474.Special rules regarding the filing of returns for the annual tax on enveloped dwellings are necessary in the first year as the legislation regarding the tax will only become law on Royal Assent being given to the Finance Act 2013. Obligations under that law can only be enforced at that point. So whilst the tax will be due for the chargeable period 1 April 2013 to 31 March 2014 the filing obligation for this year will be 1 October 2013 with payment by 31 October 2013. It also includes rules for the delivery of the return where the days the person is within the charge, with respect to the interest, do not include 1 April 2013.