The Chancellor in his 2014 Budget has announced an extension of the Annual Tax on Enveloped Dwellings (“ATED”). ATED imposes an annual tax charge on residential property worth £2m or more held within corporates.

The Chancellor has announced the charge is to be extended to a broader range of residential property, so that as of April 2015 enveloped i.e. corporate held, residential properties worth £1,000,000-£2,000,000 will be subject to the ATED, and from April 2016 this will be applied to residential properties in the £500,000 – £1,000,000 price bracket as well. These properties will also be brought within the ATED related CGT charge.

In the more immediate future, the Government has announced the 15% rate of SDLT that applies to purchases of residential property by companies will be extended to properties worth £500,000 or more as of 20 April 2014.

Before the Budget it was announced with some surprise that the ATED has raised 5 times the amount forecast for 2013-14. It’s therefore hardly surprising that it is being extended across a greater band of properties.

First, since non-residents selling UK real estate are likely to be within the charge to capital gains tax as of April 2015, anyone wishing to restructure out of current enveloped structures will need to focus on doing so in good time before next April.

Second, given the apparently endless rise in the value of central London property and London’s continuing allure for international investors, those investors face a stark choice between the ATED charges and an exposure to inheritance tax on their UK property.