{"id":8275,"date":"2022-11-04T11:09:01","date_gmt":"2022-11-04T11:09:01","guid":{"rendered":"https:\/\/www.taxpolicy.org.uk\/?p=8275"},"modified":"2022-11-04T11:17:18","modified_gmt":"2022-11-04T11:17:18","slug":"ated","status":"publish","type":"post","link":"https:\/\/heacham.neidles.com\/2022\/11\/04\/ated\/","title":{"rendered":"ATED – the obscure tax that nobody was supposed to pay (and why we should raise \u00a3200m of tax by increasing it)"},"content":{"rendered":"\n

We all pay stamp duty when we buy a house. But there’s a well-known trick: have your house owned by a company \u2013 a special purpose company that does absolutely nothing else (often called “enveloping”). Then, when you come to sell, you sell the shares in the company, and the buyer1<\/a><\/sup> since it’s the buyer making the stamp duty saving, why does the seller go to the trouble of enveloping the property? Because in practice, stamp duty is economically shared between the buyer and the seller, and by arranging a stamp duty-free sale, you expect that you are increasing your future sale proceeds.<\/span> pays no stamp duty.2<\/a><\/sup>If it was a UK company, there would be 0.5% UK stamp duty\/stamp duty reserve tax. So all envelopes are in practice non-UK companies. Do people really go to this trouble just to save 0.5%? Yes \u2013 helped by the fact that it is often cheaper to maintain an offshore company than a UK company.<\/span> <\/p>\n\n\n\n

This had been going on forever<\/em>, but became widely publicised in the early 2010s. In a sane world, the “loophole”3<\/a><\/sup>Scare quotes because I have zero interest in arguing whether or not it is really a loophole<\/span> would’ve been closed by simply applying stamp duty to the sale of the shares. But for obscure reasons,4<\/a><\/sup>in large part EU law complications around the Capital Duties Directive<\/span> the loophole was left open, but anyone exploiting it and buying residential real estate held by a company was stung with an annual tax \u2013 the “annual tax on enveloped dwellings” introduced in 2013<\/a> \u2013 ATED. <\/p>\n\n\n\n

The idea was that the prospect of paying an annual tax would put people off enveloping altogether – ATED wouldn’t raise much money, but would increase stamp duty revenues. That didn’t quite happen – and ATED, the tax that nobody was supposed to pay, ended up raising over \u00a3100m each year, with around 5,000<\/a> residential properties still held in envelopes (including about 100 properties worth more than \u00a320m). <\/p>\n\n\n\n

Why are people stubbornly keeping their homes enveloped, despite ATED?<\/p>\n\n\n\n

Sometimes to hide the identity of owners (whether because of security<\/a> concerns or more malign<\/a> reasons) – although this will now<\/a> be harder to do.<\/p>\n\n\n\n

Sometimes simply because ATED is way too small to undo the stamp duty saving from enveloping. The tax applies in bands like this<\/a>:<\/p>\n\n\n\n

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This means that the gap between stamp duty and ATED is fairly dramatic, particularly at the high end.<\/p>\n\n\n\n

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In other words:<\/p>\n\n\n\n