HMRC internal manual

Capital Gains Manual

CG73860 - Non-Resident Capital Gains Tax (NRCGT) – Disposals on or after 6 April 2015 to 5 April 2019: Interaction between Non-Resident CGT and ATED-related CGT: Introduction

‘ATED-related CGT’ was introduced in 2013 alongside the income tax charge ‘ATED’ - Annual Tax on Enveloped Dwellings.

As explained in CG73600, the two taxes were introduced primarily to discourage the ‘enveloping’ of UK residential property in a corporate entity to avoid Stamp Duty Land Tax. Effective ownership of properties could be transferred without SDLT being incurred, because the asset sold would be an interest in the entity and not the property itself.

ATED is payable yearly by the envelope entity for any high-value UK residential property it owns, at a rate determined by the value of the property. “High value” properties were initially those worth in excess of £2 million, with the tax payable per year ranging from £15,000 to £140,000 according to the value of the property. Changes were announced in 2014 which have the effect of progressively reducing the threshold at which tax becomes payable from £2 million to £500,000.

ATED-related CGT applies in respect of gains accruing to these ‘envelope’ entities on disposal of such properties, to the extent that ATED has been paid on them. The legislation refers to a charge on “relevant high value disposals”.

Both ATED-related CGT and non-resident CGT apply to disposals of UK residential property held by overseas companies. Given their common target, some lobby groups called for ATED-related CGT to be abolished when plans for non-resident CGT were announced, but government Ministers made the policy decision that it was appropriate to have both taxes.

A crucial point is that the 2015 legislation provides for a charge to ATED-related CGT and the computation of ATED-related gains to take precedence over a charge to non-resident CGT in appropriate cases.

The computational rules for ATED-related CGT are set out in TCGA/Sch 4ZZA and for non-resident CGT in Sch 4ZZB (Sch 4ZZB/Part 4 is specifically concerned with NRCGT cases that involve relevant high value disposals). The 2015 legislation introduces complex rules that inter alia prevent double charging or other mismatches between the two provisions, in cases where the disposal of a UK residential property interest may fall within the scope of a charge to CGT under both heads.

This Part of the manual considers interactions between the two charges.

(These rules are relevant to disposal in the period 6 April 2015 to 5 April 2019. From 6 April 2019 there were significant changes. See the guidance at CG73920 onwards.)