A London property investment firm says the government has enjoyed a tax take of £394m since introducing the Annual Tax for Enveloped Dwellings in 2013.
Introduced by former Chancellor George Osborne, the stated aim of ATED was to discourage owner occupiers from making significant stamp duty savings by buying expensive homes in so-called ‘corporate wrappers’. It was also a way to encourage people to invest in their own names rather than using the anonymity of a company structure.
According to analysis by London Central Portfolio, the tax was initially imposed on properties above £2m, with the liable value being lowered to £1m in the last tax year. Properties worth over £500,000 are liable from this year, 2016-17.
LCP says the number of liable properties above £2m has decreased 14 per cent since the tax was introduced; the number between £10m and £20m has dropped even more, by 27 per cent.
This is due to a de-enveloping of existing properties as owners transfer them into their own name, and a general reduction of purchases through corporate structures
Some 5,720 properties valued over £1m each were reported liable to the charge, representing 0.03 per cent of all privately owned property in England and Wales.
“Meeting the government objective to deter stamp duty savings through company transfers, the ATED has encouraged owners to drop property out of corporate structures and hold properties in their own names. This has had the additional benefit of increased transparency” explains Naomi Heaton, LCP’s chief executive.
“Whilst the falling number of owner-occupied properties in corporate wrappers is good news for the government, it is likely that it will be accompanied by falling tax revenues. Indeed, without the recent rate rise, the government would have collected 37 per cent less tax revenues in the £2m+ bracket in the 2015-16 financial year, which would have resulted in a lower tax take than the previous year” says Heaton.
“It also appears that the government has significantly over-estimated the number of lower value properties between £500,000 and £2m which are held in such structures by owner-occupiers” she adds.
She says the government has projected a further £90m of tax to be collected next year across 12,000 of those ‘lower value’ additional properties. “However, with increasingly high establishment and running costs, the use of company structures has typically not been considered an option at the lower end of the market. It is therefore unlikely that the projected tax take will be realised this year” Heaton suggests.