The Finance Act of 2012 introduced a number of changes to the way in which high value residential property is taxed. The legislation is designed to discourage buyers from buying and holding residential property using corporate entities in order to avoid the payment of Stamp Duty Land Tax on future sale and, in the case of overseas investors, to avoid Inheritance Tax.

There was an extension of the scope of Capital Gains Tax (‘CGT’) and a new Annual Tax on Enveloped Dwellings (‘ATED’), both of which are explained in more detail below. A special rate of Stamp Duty Land Tax (‘SDLT’) was also introduced.


ATED and ATED-related CGT apply to “non-natural persons” which includes companies, partnerships where one or more of the partners is a company, and collective investment vehicles. For the purposes of this note, references to companies will include other forms of “non-natural persons”.

ATED and ATED-related CGT do not apply to a trust which holds property either directly, or through a nominee company.

“High value residential property” for the purposes of all three tax regimes means a dwelling in the UK whose value is greater than £1 million. This threshold will be reduced to £500,000 with effect from 1 April 2016. A dwelling may be all or part of a residential or mixed-use property, and includes gardens, grounds, and any building within them (unless such building has a “Relievable Purpose”).


ATED-related Capital Gains Tax

ATED-related CGT is chargeable on the disposal by a “non-natural person” of high value UK residential property. The charge applies to companies registered both in the UK and abroad and replaces Corporation Tax on such gains. There was an effective rebasing of properties worth more than £2 million as of 6 April 2013, and further rebasing on 1 April 2015 and 1 April 2016 in respect of properties worth more than £1 million and £500,000 respectively. CGT is charged at 28% on the appreciation after the re-basing or the date of acquisition, if later, up to the date of disposal.

A tapering relief applies to gains in respect of property which is worth just over the threshold (which will reduce the chargeable gain which is liable to CGT).

It is not be possible to avoid the new rules by fragmenting the asset in question into a number of smaller, less valuable holdings. If a company owns a proportion of a property worth more than the threshold then that proportion is subject to tax.

Finally, disposals by non-UK residents of shares in a company owning high value property are not subject to the CGT charge, nor are disposals by non-UK resident trustees.

Annual Tax on Enveloped Dwellings (ATED)

ATED is an annual charge levied upon high value UK residential properties owned by companies.

The charge is calculated by reference to the value of the property, as follows:

Property value Annual Charge 2014 / 2015

£½m – £1m £3,500 (as from 1.4.16)

£1m – £2m £7,000

£2m – £5m £23,350

£5m – £10m £54,450

£10m – £20m £109,050

Over £20m £218,200

In the event that a company owns a high value property for only part of the chargeable year, or the use changes to a “Relievable Purpose” part-way through the chargeable year, ATED is levied on a proportionate basis.

The value of the property will need to be submitted on an ATED Return and calculated as the value on 1 April 2012 or, if acquired later, the value at the date of acquisition or purchase.

The initial valuation or acquisition value will remain relevant for the first five ATED Return periods. Thereafter, properties will need to be revalued, and the new value will remain current for the next five ATED Return periods, and so on. Each ATED Return must be submitted by 30 April for each year beginning on 1 April, with any tax due being payable at the same time.

If a property subject to ATED is purchased part-way through the year, then an ATED Return must be submitted within 30 days following completion of the purchase.

The owner of the property can decide whether to self-assess the value, or use a professional valuer, but any valuation must be on an open-market basis, and must be specific and realistic. Any valuation deemed wrong by HMRC may give rise to a penalty charge, plus the increased ATED payable, plus interest on any late payment.

Stamp Duty Land Tax

A special rate of SDLT at 15% is payable on the purchase of residential properties by non-natural persons in the case of properties having a value of £500,000 or more.

Reliefs From ATED and ATED-Related CGT

In general terms, where a person connected with a company which owns high value UK residential property occupies that property, a relief will not be available (although this is not the case in circumstances where “Relievable Purposes” C and E below apply), and different interests in the same property (e.g. freehold reversion and long lease) held by the same company, or a company and persons connected with that company, that company will be treated as owning the whole interest in the property.

If a high value property is used for a “Relievable Purpose”, it may be outside the scope of ATED and the new charge to CGT.

“Relievable Purposes” will include:

  1. Properties used for a property rental business, a property trade, or a property development trade (provided that the property is not at any time occupied or available for occupation by anyone connected with the company owner);
  2. Properties which provide accommodation for employees (not including domestic staff) but only where such employees do not have a direct or indirect interest of more than 5% in the company which owns the property;
  3. Farmhouses which are occupied by the farmer who farms the associated farmland on a full time basis, provided that the farmhouse is of an ‘appropriate character’;
  4. Properties which are let to a third party on a commercial basis, and are not at any time occupied (or available for occupation) by anyone connected with the owner;
  5. Properties used in a trade which involves generating income from the property (e.g. historic houses, guesthouses, etc.);
  6. Properties which have been granted a conditional Inheritance Tax exemption; and
  7. Properties held for a charitable purpose (including those held by an incorporated charity, and certain other diplomatic or publicly owned companies).


In order to claim a relief, the owner will still need to submit the relevant Return, even if one of the “Relievable Purposes” excludes the tax liability.


The new tax regimes will not apply to:

  1. Companies which use property for a “Relievable Purpose” (although, as stated above, a relief may not be available where the property is used by a person connected with the company owner, for personal occupation); and
  2. Trusts holding property directly, or through a nominated company.

The use or ownership structure of the property may therefore be changed to qualify for one of these exemptions.

Alternatively, the owning company may be wound up and the property passed to the individual shareholders. This transfer will be exempt from SDLT, but the Inheritance Tax implication will need to be carefully considered.


Where a company is acquiring high value UK residential property which is already used for a “Relievable Purpose” (therefore qualifying for a relief) then, provided the new owner has no intention of changing the use of that property, the relief will continue to apply.

Where the property is to be used for personal occupation of the owner, the most sensible option may be for the owner to acquire the property in their own name. Under these circumstances, the ATED and higher rate of SDLT will not apply and, further down the line, it may be that a full CGT exemption applies on disposal if it can be shown that the property in question is the owner’s principal private residence. Liability to Inheritance Tax can be covered by life insurance and joint ownership arrangements can be put in place where possible to reduce Inheritance Tax exposure and to avoid the need for a UK Grant of Probate on the death of any one owner.

Alternatively, the property can be acquired by trustees though, as with personal ownership, the Inheritance Tax implications will need to be carefully considered.

Given the significance of the potential tax liability, it is advisable that anyone affected seeks specialist advice. If you wish to obtain further information and advice, please do not hesitate to contact us. The correct advice will depend upon the circumstances of each case, and the content of this note is for general guidance only.

(updated Nov 2015)

Relevant advisors, click on the name to visit their page

Paul Hall – Senior Partner

Isobel Willoughby – Assistant Solicitor

Monro Wright & Wasbrough LLP
7-8 Great James Street

DX: 35 London / Chancery Lane

T: 020 7404 7001
F: 020 7404 7002

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