UK residential property owners living in Jersey may be in for a shock. From April 2016, properties valued at £500,000 to £1 million will be liable to a property tax for the first time.
Importantly for Jersey residents, the tax – known as the Annual Tax on Enveloped Dwellings (ATED) – applies to all properties held within a Jersey Company structure.
Introduced by the UK's 2013 Finance Act, properties worth in excess of £2 million were initially subject to ATED. This year saw that figure fall to £1 million. Next year's reduction provides the potential for many more properties to be caught.
For a long time there have been various tax advantages to holding UK residential property in a Jersey Company structure. Jersey residents have historically benefited from:
- Ease of administration
- The ability to easily pass down assets to future generations
- UK inheritance tax relief – for example, if you've got UK assets worth more than £225,000 you have to pay UK inheritance tax upon your death at 40%; a Jersey Company transforms that to a Jersey asset and you no longer have to pay.
However, due to political pressures HMRC are slowly shutting the door on tax benefits from UK residential property ownership.
Following this year's budget the inheritance tax benefit no longer applies, which means clients now have a double whammy of the ATED and no inheritance tax relief.
To compound the issue, any client holding UK residential property which is subject to ATED will in the future need to pay a capital gains tax regardless of where they reside.
The ATED charge on properties worth £500,000 to £1 million is £3,500 per annum, which is determined on a property by property basis; for properties of £20 million plus, the charge is over £200,000 per year, per property. Property owners who have clients or family members living in these houses rent free may find themselves with large tax charges as a result.
There is some good news, however: this doesn't apply to properties held outside a Jersey Company structure. So UK residential properties held within a Jersey trust, commercial properties, or properties purchased as an investment for buy-to-let purposes are exempt (you'll still need to file a tax return and claim the exemption on that tax return).
For property owners subject to ATED, this may mean properties needing to be moved out of existing Jersey Company structures. But be warned, this could trigger other taxes such as stamp duty.
There will be Jersey residents who have set up structures holding UK residential properties but may not be aware of this tax change. Similarly, there could be structures set up a long time ago that may no longer be compliant with the new rules.
So, whilst it is not exactly welcome news for property owners, this is a good opportunity for island residents to review their structures to ensure they are sheltered from the ever-changing UK property tax laws. These property charges are looming large on the horizon. Don't be caught out by them.
Who does it affect?
Anyone with UK property valued at £500,000+ that is held within a Jersey Company structure.
How does it affect them?
From April 2016, you will face a charge of £3,500 per annum, per property for properties valued at £500,000 to £1 million, up to £200,000 per year for properties of £20 million plus. You will also be liable to future capital gains tax regardless of where you reside.
What should they do about this?
Speak to a professional advisor about reviewing your structure to ensure you are appropriately safe-guarded from the ever-changing UK property tax laws.