Policy paper

Annual Tax on Enveloped Dwellings and Stamp Duty Land Tax: extension of scope of reliefs from 15% rate

Published 9 December 2015

Who is likely to be affected

Companies, partnerships with company members, and collective investment schemes (collectively referred to as non-natural persons (NNPs)), which acquire and own residential property in the UK valued over £500,000.

General description of the measure

The measure will extend the scope of the reliefs available from Annual Tax on Enveloped Dwellings (ATED) and 15% higher rate of Stamp Duty Land Tax (SDLT).

Policy objective

This measure is intended to relieve from these charges UK residential property acquired or owned by NNPs for genuine business purposes.

Background to the measure

ATED and 15% SDLT are charged on NNPs who acquire and beneficially own an interest in UK residential property. SDLT is charged at 15% on acquisition (i.e. on enveloping), and ATED is charged annually whilst the property remains within the envelope. Both taxes include a number of reliefs aimed at legitimate business use (e.g. property developers).

Initially, the ATED and 15% SDLT entry thresholds were set at £2 million, but Finance Act 2014 lowered these to £500,000. Following this change, certain business/commercial arrangements have been identified which do not currently qualify for a relief, specifically Equity Release Schemes i.e.: Home Reversion Plans; properties occupied by certain employees; and acquisitions by businesses for demolition or conversion for non-residential use.

Legislation is being introduced so that relief will also be available in these circumstances.

Detailed proposal

Operative date

These amendments will come into effect on 1 April 2016, to coincide with the lowering of the ATED entry threshold to £500,000.

Current law

Sections 132 to 150 of Finance Act (FA) 2013 make provision for reliefs from ATED. In particular, sections 133 to 134 provides relief where a property is owned by a qualifying property rental business and section 145 provides relief where a property is occupied by certain qualifying employees of a trade.

Similarly paragraphs 5 to 5K, Schedule 4A to FA 2003 make provision for reliefs from 15% SDLT and for withdrawal of the relief in certain circumstances. In particular, paragraph 5 provides relief where a property is acquired by a property rental business, trade or developer and paragraph 5D provides relief where a property is acquired for occupation by certain qualifying employees of a trade.

Proposed revisions

Legislation will be introduced in Finance Bill 2016 to amend FA 2003 and FA 2013 to widen the scope of the reliefs available from both ATED and the 15% higher rate of SDLT. Section 145 of FA 2013 is amended so that relief from ATED is not only available where a property is occupied by an employee of a trade, but also where a property is occupied by an employee of a qualifying property rental business. Similar amendments are made to paragraph 5D of FA 2003 in respect of the 15% rate of SDLT.

New section 147A is inserted into FA 2013 to also provide relief from ATED where a property is occupied by a person employed to act as caretaker in a building of multiple occupancy: e.g. a block of flats. New paragraphs 5EA and 5JA are inserted into FA 2003 to provide similar relief from 15% rate of SDLT and for subsequent withdrawal.

New section 144A is also inserted into FA 2013 to provide relief from ATED where an interest in a property is held exclusively for the purposes an Equity Release Scheme (specifically a ‘home reversion plan’) where that activity is regulated by the Financial Conduct Authority. New paragraphs 5CA and 5IA are included in Schedule 4A to FA 2003 to provide similar relief from the 15% rate of SDLT and for subsequent withdrawal.

New paragraph 5AA is inserted into Schedule 4A to FA 2003 to provide relief from the 15% rate of SDLT where a business purchases a property either for demolition or conversion for non-residential use. New paragraph 5GA provides that relief will be withdrawn if, within a period of 3 years from the date of transaction, if demolition or conversion has not begun or the property is used as a dwelling.

Summary of impacts

Exchequer impact (£m)

2015 to 2016	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021
negligible	negligible	negligible	negligible	negligible	negligible

This measure is expected to have a negligible impact on the Exchequer.

Economic impact

This measure is not expected to have any significant economic impacts.

Impact on individuals, households and families

These changes are not expected to have any direct impact on individuals as ATED and 15% SDLT are charged on companies, partnerships with company members, and collective investment schemes.

These changes are only likely to impact on individuals insofar as they prevent any additional costs being passed down to residents, live-in employees and their families, or to individuals who enter into home reversion plans.

This measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

These changes are not expected to have an adverse impact on or any of the legally protected equality groups. This measure is not expected to have an equality impact on groups of people sharing any protected characteristics.

Impact on business including civil society organisations

ATED and 15% SDLT impacts on businesses (i.e. NNPs) acquiring and holding UK residential property or land. Businesses will now be able to claim relief from the charges when these changes are introduced, resulting in a negligible reduction in administrative costs as it reduces the number of returns that need to be filed and subsequently the information that would otherwise have been required those in the returns.

Certain qualifying property rental businesses will be able to claim relief from these charges in respect of accommodation it provides, or intends to provide, to certain employees and their family. Similarly, businesses which self-manage buildings of multiple occupancy (e.g. blocks of flats) will be able to claim relief from these charges in respect of the accommodation occupied, or intended to be occupied, by a caretaker.

Businesses who enter into Home Reversion Plans regulated by the Financial Conduct Authority, will be able to claim relief where, as a result of the scheme, they acquire part or the whole of an interest in a property.

A business which acquires residential land and property to convert into non-residential use, or for demolition, will be able to claim relief from the 15% rate of SDLT.

Small and micro business assessment: the impact of this measure is anticipated to be the same irrespective of business size. Business of any size can be affected by these measures.

This measure will have no impact on civil society organisations as these are exempt under the current legislation.

Operational impact (£m) (HM Revenue and Customs (HMRC) or other)

There will be some costs for changes to HMRC’s IT systems but these are not expected to be significant.

Any additional costs for HMRC in implementing this change are expected to be negligible.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be monitored and assessed through existing data-gathering systems and information collected from tax returns.

Further advice

If you have any questions about this change, please email: ated.technicalqueries@hmrc.gsi.gov.uk