The Autumn Statement on 23 November contained no further detail about how the Government’s proposals for achieving Inheritance Tax transparency for offshore structures from 6 April 2017 is going to work in practice. However, in rather ominous fashion, the Government did use the occasion to confirm that the changes are going ahead as planned from 6 April 2017.
Non-doms owning UK residential property through offshore trusts, companies or other vehicles need to get their skates on if they are to get any reorganisations finished by 6 April 2017 (see my blog of 3 November 2016 for one reason why doing so may be desirable). However, there may be another good reason – some may find their company’s Annual Tax on Enveloped Dwellings (ATED) bill goes up substantially too. Here’s why.
1 April 2017 is another ‘Valuation Day’ for ATED purposes. A Valuation Day affects how much ATED a company pays. At its simplest, ATED is payable if a non-natural person (be they UK based or offshore) beneficially owns a single dwelling interest with a taxable value of (currently) more than £500,000. The amount of ATED that, say, a company pays is based on the taxable value of the single dwelling interest, which is calculated with reference to the open market value of the property on the most recent valuation date. The ATED legislation provides for five year intervals between valuation dates (with separate rules for properties acquired in between valuation dates). The first valuation date was 1 April 2012 and the next is 1 April 2017.
Many companies may have only started to pay ATED in 2015 and 2016 because the property that they may have owned for many years prior to 1 April 2012 was, on that date, only worth between £1,000,001 and £2,000,000 (for ATED 2015/2016) or £500,001 and £1,000,000 (for ATED 2016/2017). The ATED threshold value dropped to between £1,000,001 and £2,000,000 for the first time in ATED tax year 2015/2016 and to the lower band in ATED tax year 2016/2017.
The Autumn Statement confirmed that the ATED rates for 2017/2018 will rise in line with inflation. However, for those companies who find that, in the last five years, their property has jumped into the next ATED valuation bracket, the increase will be much more substantial, particularly if moving between some of the higher brackets, as this table of 2016/2017 ATED tax year rates shows:
Chargeable amounts for 1 April 2016 to 31 March 2017
|Property value||Annual charge|
|More than £500,000 but not more than £1 million||£3,500|
|More than £1 million but not more than £2 million||£7,000|
|More than £2 million but not more than £5 million||£23,350|
|More than £5 million but not more than £10 million||£54,450|
|More than £10 million but not more than £20 million||£109,050|
|More than £20 million||£218,200|
(www.gov.uk: Crown copyright)
For example, a company owning a property worth £1,700,000 on 1 April 2012 will have had to pay £7,000 of ATED for the last two ATED tax years only but if the property has risen in value to £2,100,000 by 1 April 2017, the company will be expected to find £23,350 per annum instead (using current tax year’s rates). That will put the Government’s planned inflationary increases in the shade!
The Government says that the 2017 Valuation Date will affect ATED tax calculations in 2018/2019 onwards. This means that there should be no rush to get 1 April 2017 valuations done in time for the 30 April 2017 deadline for the next payment of ATED. However, the year’s delay may lull some into a false sense of security.
The new ATED valuation date and the expense involved in getting another valuation done are additional factors to throw into the mix when working out whether it is worthwhile keeping UK residential property ‘enveloped’ in an offshore structure after 5 April 2017.