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HMRC internal manual

Capital Gains Manual

Dwellings subject to ATED: introduction: Budget 2012

At Budget 2012 the Government announced a package of measures to counter arrangements to avoid tax by “enveloping” high value residential property in the UK.

An example of the sort of arrangements targeted is:

  • A wealthy individual Z is resident, but not domiciled, in the UK and is chargeable on the remittance basis (see CG25313+). Z owns 100% of the shares in Company Y, which is not UK resident.
  • Z arranges for company Y to buy a residential property in London for £5 million. Company Y has no other assets and the shares are worth £5 million. The property is “enveloped” in company Y.
  • After a few years the property has increased in value to £8 million, and so have the shares in Y. Z sells the shares for £8 million to another UK resident, non-domiciled individual X.
  • Z has effectively realised a profit of £3 million on the London property, but -

    • Z can ensure the gain on the shares in Y is tax-free by not remitting the gain to the UK;
    • X will not be liable to stamp duty land tax (SDLT) on acquiring the shares in Y, the “envelope” sheltering the London property;
    • X will be able to repeat the process if and when X sells on the shares in Y.

The Budget 2012 package of measures counters this sort of avoidance by -

  • introducing a 15% rate of SDLT when chargeable interests in residential property worth more than £2 million are “enveloped”, that is, purchased by certain persons including corporate bodies, on or after 21 March 2012 and conditions are met (FA03/Sch4A);
  • announcing a new annual charge on residential property worth more than £2 million and held by “envelopes”, taking effect from 1 April 2013 - the Annual Tax on Enveloped Dwellings (ATED), see below; and
  • announcing a new capital gains tax charge where “envelopes” such as companies dispose of residential property which has been subject to ATED on or after 6 April 2013.

The ATED is in Part 3 of Finance Act 2013. For detailed guidance see

CG73601 gives a general outline of the scope of ATED. You need a general understanding of where ATED applies in order to know where the new capital gains tax charge applies, because gains on disposal of relevant high value property are liable to the capital gains tax charge only to the extent that the property has been subject to ATED during the relevant period of ownership.

An outline of the scope of the capital gains tax charge is at CG73602 and detailed guidance is at CG73610+.