20/02/18

Surprise dip in tax from offshore-held property

(International Adviser) -- HM Revenue & Customs has reported a surprise drop in the annual tax enveloped dwellings (ATED) take, which is payable mainly by companies that own UK residential property valued at £500,000 or above.

HM Treasury has been squeezing foreign and non-dom owners of UK property who have been avoiding tax and protecting their privacy by holding their homes through offshore company envelopes.

ATED goes hand-in-hand with tax pressure on buy-to-let landlords.

The tax on residential property owned through offshore companies has chiefly affected non-domiciled UK residents and foreign owners of property in the London boroughs of Westminster and Kensington & Chelsea.

The latest HMRC statistics show 2016-17 ATED receipts fell by 2% to £175m ($245m, €197m) down from £178m in the previous year.

“The drop in ATED receipts may have come as a surprise to many, including perhaps the government,” said Lucy Brennan, partner at accountants Saffery Champness.

“Driven, in part, by a 68% rise in relief claims, the decrease on last year’s take may be due to people increasingly renting out their properties.

“The other reason for the increase in reliefs will be the inclusion of property valued over £500k. We may well see more reliefs claimed in the future with more and more individuals turning to companies to hold property portfolios in light of the recent changes in interest relief.

“Looking ahead, from 6 April 2017 all UK residential property is subject to inheritance tax regardless of the structure it is held in, therefore there was a lot of de-enveloping activity prior to that date which may impact on HMRC’s ATED take in 2017/18.”

However, Brennan expects the tax take to increase after 2018 because many properties will be coming up to the first period for revaluations.

The fall in ATED tax receipts was observed across most bands with the £5m-£10m band falling by the largest amount of £4m (10%) followed by the £2m-£5m band which fell by £3m (6%) and the £10m-£20m which fell by £2m (7%).

The decrease in receipts was offset slightly by the new £500k-£1m band, which was introduced in April 2016 and accounted for 4% (£7m) of ATED receipts in 2016-17.