CITIZENS

20 October April/May 2015 2011
Business & Finance
Kensington, Chelsea & Westminster Today
www.KCWToday.co.uk
The annual tax
on enveloped
dwellings
Not just a tax on the rich
By Alan Pink
The annual tax on enveloped
dwellings (ATED) was ‘sold’
to the public when it was
introduced two years ago as a response to
tax avoidance engaged in by the ‘superrich’.
But, even if owning a property
worth more than £2 million makes you
‘rich’ these days, the government haven’t
stopped there. The tax already applies
to homes worth between £1 million and
£2 million, and is set to apply to any
dwelling worth more than £500,000
from next April.
What is ATED? Basically it’s an
extra ‘rates’ bill which applies wherever
you have a home, including a second or
third home, which is owned wholly or
in part by a company, or a partnership
which includes a company. So anyone
who simply owns their residence directly
in their own individual name can breathe
a sigh of relief and turn the page. But
ATED is an issue if you have a company
anywhere on the horizon, whatever the
nature of the residential property that
is owned. The annual tax for properties
worth between £1 million and £2 million
is £7,000. For properties between £2
million and £5 million, this jumps to
£23,350 a year, and properties between
£5 million and £10 million pay a colossal
£54,450. The charges for properties
between £10 million and £20 million,
and properties worth more than £20
million, are £109,050, and £218,200
respectively.
It’s no good saying that you, or the
company, only own a fractional share
in the property. The full tax is still
chargeable on the value of the whole
property. And there are reporting
requirements, complete with penalties
for non compliance, for everyone who
is even prima facie within the scope of
ATED.
After all this bad news, it’s time for
some good; which is, firstly, that the tax
doesn’t apply to commercial properties,
only dwellings. Secondly, dwellings
which are held for the purposes of a
business letting or developing property
are also excluded, but you have
specifically to claim these ‘reliefs’. If
the property is let for a part of the year
but available for your use, or the use of
someone connected with the owner, on
a non-business basis for the rest, the tax
charge is scaled down.
One class of investor that ATED
will hit are those who are non-resident
and non-domiciled in the UK, who
are owning property through, typically,
an offshore company. The reason
offshore companies are used to hold
properties, often high value London
properties, is usually to protect against
UK inheritance tax. It’s not generally
appreciated that even those who have
nothing to do with the UK, beyond
holding some investments here, are liable
to inheritance tax when they die, the tax
is on assets situated in the UK. So what
wealthy non-domiciliaries tend to do
is move their properties into offshore
companies, so that the asset held by the
individual is a non-UK asset, i.e. the
shares in a non-UK company, rather a
UK property.
Very often the reaction of those
affected by ATED will be to extract the
property from the offending company
or partnership. However, counterintuitively
perhaps, many will actually
seek to set up an offshore holding
company structure for UK property even
in the face of the ATED charge. Imagine
a person who’s domiciled in the Middle
East, and who currently owns a property
worth £10 million in a prestigious part
of the West End. What ATED has done
is highlight the fact that there are very
good reasons why this individual may
want to transfer the property into, say, a
Channel Islands company. Even paying
over £100,000 a year ATED may well be
preferable to the individual’s estate facing
a tax charge of somewhere between £4
million and £8 million on the owner’s
death! What’s more, this sort of action
has arguably become much more urgent
recently, because non-residents have
now been brought within the charge
to UK capital gains tax on UK based
property, something which they have
been free of ever since its introduction.
Putting a property which is currently
owned personally by a non-resident into
a company triggers a capital gain based
on the market value: however, if you are
non-resident, your “base cost” for this
transfer is the value at 6 April 2015,
when the new capital gains tax charge
was brought in. So there is a ‘window
of opportunity’ to set up these property
holding envelopes over the next few
months before the advance of property
prices makes that set up expensive in
CGT terms.
Alan Pink FCA ATII is a specialist tax
consultant who operates a bespoke tax
practice, Alan Pink Tax, from offices
situated in Tunbridge Wells. Alan
advises on a wide range of tax issues
and regularly writes for the professional
press. Alan has experience in both
major international plcs and small
local businesses and is recognised for
his proactive approach to taxation and
solving tax problems.
Alan can be contacted on:
T. 01892 539000 or email: alan.pink@
alanpinktax.com.
His book, The Entrepreneur’s Tax
Guide, is on sale from Head of Zeus for
£20, or from all good book shops.
RBKC considers
its limited
options
on ‘Buy to Leave’ properties
In a recently published report, it emerged
that Kensington and Chelsea council
have examined the extent of ‘Buy to
Leave’ residential properties in the
borough, and are considering the options
open to them that could discourage this
behaviour. The council defined ‘Buy to
Leave’ properties as those which the
owner purchased with no intention of it
being occupied full time, by themselves
or a renter, and so includes properties
purchased solely for investment purposes.
The Royal Borough of Kensington
and Chelsea (RBKC) has occasionally
been referred to as ‘the Dark Borough’
due to its large number of empty homes,
left unoccupied with the lights off for
extended periods of time.
Establishing the scale of this
phenomenon is difficult, however the
council’s research indicates that it is
more prevalent in RBKC than in other
parts of the UK and London. Their
findings suggest that areas in the south
and east of the borough, and notably
the Brompton & Hans Town ward (see
image), are particularly unoccupied.
council tax data from 2012 and data
Bitcoin start-up
comes to
the capital
By Emily Eaton
Circle, the bitcoin service company
backed by Goldman Sachs, is planning
to open a London office, as revealed by
The Business Insider on 1st October.
This office will head up a European
expansion. Executives from the company
were reportedly in London recruiting
a country manager for the UK and
scouting office locations in the capital.
The firm has been talking about the
from the 2011 Census indicate that
roughly 10% of the borough’s housing
stock is vacant, however it is likely that
some second homes were counted in
this figure. Regardless, in conjunction
with other sources of data, the council
concluded that “a large share of the
research points towards the south and
east areas of the borough, particularly
Brompton and Hans Town ward which
should be an indicator that there may
be higher than normal levels of vacant
properties”.
The report also noted that “the
combined effect of overseas investment
into property within the Royal Borough
is to increase prices while decreasing the
number of households who reside here”.
The council’s policy options that
could discourage ‘Buy to Leave’
purchases of property are limited. In
2013, the discount off council tax for
second home owner ended, and the
Council agreed in its Budget Proposals
for 2015/16 that owners of properties
that have been empty for more than
two years would be charged at a 150%
council tax rate, however the report
admits that this is only a “small financial
incentive” to bring properties back into
use. Aside from this, acknowledging that
other local policy options are equally
limited, the council does note, “There
is an option to lobby with other local
authorities to use the London Local
Authorities Act. This would require
demonstrating that ‘buy to leave’ is a
London issue that requires a London
response”.
possibility of an e-money license with
the Financial Conduct Authority (FCA),
allowing it to operate its digital wallet
service here, and add the pound to the
roster of currencies its clients can hold.
Circle is now one of the most wellknown
and successful bitcoin companies
in the United States. However, founder
and CEO, Jeremy Allaire has sought
to curtail Circle’s exclusive connection
to bitcoin, looking to establish the
company as the go-to app for any digital
transactions, small or large, in any
currency, anywhere in the world. Circle
began by offering a digital bitcoin wallet
that let people perform transactions
through bitcoin as well as hold bitcoin in
their online accounts.
Now, Allaire says this was just
the conceptualization of an idea and
that Circle is set to develop, using the
technology that underpins bitcoin to
make sending and receiving money in
any form as easy as sending an email.
This would allow two parties to, for
example, forgo foreign exchange fees
when agreeing on a transaction. Circle’s
money transaction service is free.
Circle has raised $76 million (£50.7
million) since launching in 2013 and,
more recently, $50 million (£33.1
million) in a funding round led by
Goldman Sachs back in April and is
one of the most high-profile bitcoin
companies in the US.