What's ATED all about then?

Annual Tax on Enveloped Dwellings (ATED) is payable by companies that own UK residential property (a dwelling) valued above a certain amount. This tax is payable each year. Most residential properties are owned directly by individuals. But in some cases a dwelling may be owned by a company, a partnership with a corporate member or other collective investment vehicle. In these circumstances the dwelling is said to be ‘enveloped’ because the ownership sits within a corporate ‘wrapper’ or ‘envelope’.

You’ll be affect by ATED and need to complete a return if your property:

• is a dwelling (a dwelling may be all or part of a residential or mixed commercial/residential property and includes properties ‘capable of being a dwelling’);
• is in the UK;
• was valued at more than £2 million on 1 April 2012 or at acquisition if later for returns from 2013 to 2014 onwards;
• was valued at more than £1 million on 1 April 2012 or at acquisition if later for returns from 2015 to 2016 onwards;
• is owned completely or partly by a company, a partnership where one of the partners is a company, or a ‘collective investment vehicle’ - for example, a unit trust or an open ended investment company 

There are reliefs that could reduce the tax completely but you can only claim them if you complete and send in a return. There are also a number of exemptions from the tax, most significantly, charitable companies using the dwelling for charitable purposes, which mean you may not have to file a return.

The amount of ATED due is worked out using a banding system based on the value of your property. You need to find out which value band your property is in. For full details of ATED  I recommend that you read HM Revenue & Customs full guidance here:

https://www.gov.uk/annual-tax-on-enveloped-dwellings-the-basics#what-a-dwelling-is

and consult a professional adviser for advice.

Entrepreneurs' Relief for Management Teams

Tax changes announced in Budget 2015 may well cause many management teams to lose tax relief on their existing shareholdings. Management teams who club together to hold their equity via a separate management 'feeder' company will be affected by this change. This approach is popular with many private equity investors because it pools management in a single vehicle and reduces the number of minority shareholders.

It also means that UK management can hold shares in a UK company, as opposed to having shares in overseas holding companies, which many managers will prefer, and is usually simpler. In recent years, such structures have had the benefit of enabling managers who hold 5% of the shares in the feeder company to claim entrepreneurs' relief on sale giving a 10% tax rate on an eventual exit. 

This is because the current 'joint venture' rules treat the feeder company as trading, on the basis that it has a qualifying stake in the underlying trading company. This treatment is removed with immediate effect. The shareholding will no longer be treated as being in a trading company so no entrepreneurs' relief will be available.

Management teams who have invested via such structures will now pay tax at 28% on any gains, rather than the expected 10%. The usual rule which provides a grace period for entrepreneurs' relief for three years after a company has ceased trading has been removed in these circumstances. Companies that have been affected by these changes will need to urgently review their shareholding structures and incentive arrangements.

5 Tax Planning Projects you should be thinking about...

So, we're at the beginning of a new tax year again, and we get the delight of possibly having a second budget this year depending on the outcome of next month's general election. Couple this with an increasingly darkening mood in the media towards the issue of tax and you could be forgiven for thinking that all thoughts of saving tax are moot, yet nothing could be further from the truth...

Tax Efficient Savings

Of course we can talk about the use of ISAs and the increased allowances that were announced in the budget, or even the new home-buyer ISAs. However, of more interest are the recent changes to the tax legislation surrounding pensions, and the fact that under the right circumstances they are now effectively a completely tax-free vehicle (even on the event of your death). Okay you say, but I'm limited to placing £40,000 a year into pension (of course you could carry forward if you've not been making the most of pensions, but that's a blog all on it's own). Well, then we can move on to look at EISs and VCTs, both of which offer the advantage of reducing your income (and possibly capital gains) tax bill.

Off to University?

Very often overlooked is the ability to use your personal company to fund your children's university fees in the most tax efficient manner. I did write a whole blog post on this a little while ago, see here for more details http://stevenholdentax.blogspot.co.uk/2014/09/university-fees-and-tax.html

Family Investment Company

Again, this is the resurrection of some well tried and tested planning, the only reason they fell out of favour was due to the higher rate of corporation tax being applied to close investment companies. However, with the higher rate of corporation tax falling down to 20% now there is no longer a penalty for operating your investments through a company structure. The advantages are manifold, although there can be some disadvantages too, full details can be found here http://stevenholdentax.blogspot.co.uk/2015/01/could-family-investment-company-help.html 

Review your investments

This particular bit of advice has two prongs, the first of which is to ensure that you are using up all of your available allowances for income tax, capital gains tax, inheritance tax and maxing out your contributions to tax favoured investments. That's the easy one. The less straightforward option is to look at the more unusal investment wrappers that come with a built in tax advantage such as bonds (which offer a 5% tax deferred income for 20 years), and others like discounted gift trusts and loan trusts that not only offer income tax benefits, but capital gains and inheritance tax benefits too.

Avoid Tax Schemes

Whilst the promises of mass marketed tax schemes can appear attractive, their success is often short lived. Furthermore, given the current Government's and the media's appetite for naming and shaming those involved in aggressive avoidance is another deterrent. There have been several high profile cases in recent year's and the "tax scheme" industry as a whole has been painted in a very bad light indeed. I would also expect it not to be too long before we see HMRC flexing the new muscles it gained when the GAAR was introduced. The day of the mass marketed tax scheme is all but over, unfortunately certain parts of the profession have failed to recognise this and are still peddling such schemes, BEWARE!