The tax was introduced in 2012 to discourage the use of companies to buy properties for owner occupation. It included a 15% slab-style Stamp Duty payment and an annual tax, the ATED, which increases according to property value to as much as £220,350 p.a now. It was initially imposed on properties above £2m, with the threshold being lowered to £1m in 2015-16 and to £500k in the last tax year (2016-17).
London Central Portfolio analysed the figures and found that ATED receipts have fallen for the first time this year (tax year 2016-17), from £178m to £175m. This is despite an increase in rates of 50% across the board in 2015-16 and the recent extension to include properties above £500k.The decrease in tax take was greatest in the price band between £5m - £10m at 10%
The Government also heavily overestimated the number of owner occupied enveloped properties between £500k - £2m, collecting just £21m, only a quarter of the projected £90m tax take.
Actual numbers of enveloped dwellings have also fallen. Over £2m, where a comparison can be made with when the tax was first imposed, properties held in corporate structures decreased 22%. They have also fallen 10% since the previous year.
Only 7,300 properties are now recorded as being held in corporate structures for owner occupation, representing just 0.03% of all privately-owned units in England and Wales.
These decreases in both receipts and volumes are due both to a de-enveloping of existing properties as owners transfer them into their own names and a general reduction of purchases through corporate structures.
Naomi Heaton, CEO of LCP, had this to say: “Meeting the Government objective, the ATED has increasingly encouraged owner occupiers to hold properties in their own names or drop them out of corporate vehicles. According to the latest data, just 7,300 properties are now liable to the charge, representing only 0.03% of all privately owned property in England and Wales.
For properties valued above £2m, where a like-for-like comparison can be made with when the tax was first introduced, only 3,100 properties are now held in corporate wrappers. This is a 22% fall from 2013 and 10% down over last year. Alongside the annual charge, which has more than doubled since it was first introduced to as much as £220,350, the 15% ATED specific Stamp Duty may also be discouraging new corporate purchases.
Whilst the falling number of owner-occupied properties in corporate wrappers is good news for the Government, it is now being accompanied by falling tax revenues. ATED tax receipts in 2016-17 were down from £178m to £175m. Without the tax now being collected from properties below the original £2m threshold, the overall fall in receipts is 6%.
This first sign of falling revenue may come as a surprise to the Government who significantly overestimated (by 3 times) the number of owner occupied properties held in corporate wrappers at the sub-£2m end of the market. With high establishment and running costs, the use of company structures has typically not been considered an option at these price-points. As a result, the Government’s projected windfall of £90m from properties between £500k and £2m has failed to materialise with under a quarter of this collected, at just £21m.
As a whole, the Government has made considerable progress in achieving its objectives of encouraging owner occupiers not to hold through company structures. Whilst a tax take of £175m in 2016-17 is considerably higher than the £75m estimated back in 2012, there is now the real prospect of falling revenues. However, in 2018-19, 5 years after the scheme was implemented, revaluations will be required for all properties originally caught by ATED. This may find a number of properties moving into higher value tax brackets, providing a further windfall for the Exchequer. In the meantime, Hammond may take a leaf out of Osborne’s book, who increased ATED by 50% in the 2015 Autumn Budget.”
