Specialist residential property adviser LCP (London Central Portfolio) examines recent government statistics that reflect falling numbers of properties owned in corporate structures
Government statistics published for the Annual Tax for Enveloped Dwellings (ATED) show falling numbers of owner-occupied properties in corporate structures and an accompanying decrease in tax revenues.
The tax was introduced in 2012 to discourage the use of companies to buy properties for owner occupation. It included a 15 per cent slab-style Stamp Duty payment and an annual tax, the ATED, which increases according to property value to as much as £220,350 per annum.
It was initially imposed on properties above £2 million, with the threshold lowered to £1 million in 2015/16 and to £500,000 in 2016/17.
Key points
• Overall ATED receipts have fallen for the first time this year (tax year 2016/17), from £178 million to £175 million. This is despite an increase in rates of 50 per cent across the board in 2015/16 and the recent extension to include properties above £500,000.
• The decrease in tax take was greatest in the price band £5 million-£10 million, at 10 per cent.
• The government heavily overestimated the number of owner-occupied enveloped properties between £500,000 and £2 million, collecting just £21 million – a quarter of the projected £90 million tax take.
• Actual numbers of enveloped dwellings have also fallen. Over £2 million, where a comparison can be made with when the tax was first imposed, properties held in corporate structures decreased 22 per cent. They have also fallen 10 per cent since the previous year.
• Only 7,300 properties are now recorded as being held in corporate structures for owner occupation, representing just 0.03 per cent of all privately owned units in England and Wales.
• These decreases in receipts and volumes are due to a de-enveloping of existing properties as owners transfer them into their own names, and to a general reduction of purchases through corporate structures.
Impact of ATED
Naomi Heaton (pictured), CEO of LCP, commented: “Meeting the government objective, the ATED has increasingly encouraged owner-occupiers to hold properties in their own names or drop them out of corporate vehicles. According to the latest data, just 7,300 properties are now liable to the charge, representing only 0.03 per cent of all privately owned property in England and Wales.
“For properties valued above £2 million, where a like-for-like comparison can be made with when the tax was introduced, only 3,100 properties are now held in corporate wrappers. This is a 22 per cent fall from 2013 and 10 per cent down on last year.
"Alongside the annual charge, which has more than doubled since it was introduced, to as much as £220,350, the 15 per cent ATED-specific Stamp Duty may also be discouraging new corporate purchases.
“Whilst the falling number of owner-occupied properties in corporate wrappers is good news for the government, it is now being accompanied by falling tax revenues.
"ATED tax receipts in 2016/17 were down from £178 million to £175 million. Without the tax now being collected from properties below the original £2 million threshold, the overall fall in receipts is six per cent."
Government underestimate
She continued: “This first sign of falling revenue may come as a surprise to the government. It significantly overestimated (by three times) the number of owner-occupied properties held in corporate wrappers at the sub-£2 million end of the market.
"With high establishment and running costs, the use of company structures has typically not been considered an option at these price points. As a result, the government’s projected windfall of £90 million from properties between £500,000 and £2 million has failed to materialise, with under a quarter of this collected, at just £21 million.
“As a whole, the government has made considerable progress in achieving its objectives of encouraging owner-occupiers not to hold through company structures. Whilst a tax take of £175 million in 2016/17 is considerably higher than the £75 million estimated in 2012, there is now the real prospect of falling revenues.
"However, in 2018/19, five years after the scheme was implemented, revaluations will be required for all properties originally caught by ATED. This may find a number of properties moving into higher value tax brackets, providing a further windfall for the Exchequer.
"In the meantime, Chancellor Philip Hammond may take a leaf out of Osborne’s book, who increased ATED by 50 per cent in the 2015 Autumn Budget.”