Considerations when purchasing properties into a corporate entity
In 2013, the Government introduced a new tax on properties owned by ‘non-natural persons’; in other words, under corporate structures. The tax, known as the Annual Tax on Enveloped Dwellings (ATED), is paid every year regardless of whether any income is derived from the property.
In addition to this, however, there is a further charge that applies when a company, partnership or collective investment vehicle acquires a property over a certain value. In this case, they are required to pay a significantly higher rate of stamp duty land tax (SDLT) of 15%. The threshold, which was originally £2,000,000 has been reduced for all purchases since 20 March 2014 to just £500,000 meaning that many more purchases are likely to have to pay this higher rate.
Will I have to pay higher threshold stamp duty land tax?
The 15% SDLT is payable whenever a dwelling is acquired by a company, by or on behalf of a partnership, or as part of a collective investment scheme, and the total price paid is over £500,000. If the purchase is made jointly, the 15% rate applies to the whole purchase price if any of the purchasers fulfil these requirements.
There are some exceptions, most notably that this rule does not apply to a company acting as the trustee of a settlement.
What properties does this apply to?
The 15% SDLT applies to the same properties as ATED, namely single dwellings. These are buildings which are used as or are suitable for use as a single dwelling, or are in the process of being constructed or adapted for use as one.
In assessing the value of the dwelling, the garden or grounds are included as are any buildings within them. Also included is any land or buildings which, while separate, exists solely for the benefit of the dwelling, such as a garage or parking space.
Some properties that are used as accommodation are exempt; this includes hotels and guest houses, boarding schools and student halls of residence, military accommodation, prisons, care homes, and hospitals.
Are any reliefs available?
The reliefs available from higher threshold SDLT are substantially the same as those available for ATED. In particular there are reliefs for business purchasing property for the purposes of a property rental business or for development and resale. Dwellings purchased for occupation by employees are also generally eligible for reliefs, as are farmhouses. In all such circumstances, it is a key component of the relief that the business is run for profit and the dwelling is not occupied by an individual connected with the purchaser.
How can Anderson Wilde and Harris help?
Anderson Wilde and Harris are RICS registered Chartered Surveyors that conduct residential property valuations annually. With our extensive experience and knowledge in the property sector, and our understanding of the HMRC’s requirements, we would be happy to provide you with a consultation and a full valuation report that meets all the required standards.