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Tony Mudd: We don’t have a mansion tax – do we?


The subject of a mansion tax has recently and rather tediously re-surfaced.

It is now clear that if two of the major political parties had their way the answer to this question would be yes. It is equally clear that the parties mentioned above have not been paying attention.

We may not have a mansion tax but what’s in a name? What we already have is the Annual Tax on Enveloped Dwellings. This applies to UK properties valued at over £2m and is expected to contribute substantial revenue the UK treasury. Sound familiar?

While this is where the similarities end, ATED is much better targeted at those with the means the meet the resulting liabilities. It is a tax on individuals who own UK property in a ‘structure’ in the UK or offshore. The legislation refers to these as non natural persons. To you and I these are corporate bodies.

The ATED is payable by these corporate bodies on an annual basis if the property is situated in the UK and valued at £2m, or more, on 1 April 2012 based on bands of value, as follows:

Property value Annual charge

£2-5 million


£5-10 million


£10-20 million


£20 million +


Trustees are not liable for ATED, including corporate trustees but it will catch UK residents who have used corporate nominees to acquire UK property.

Here is an example of the tax in practice.

Mrs Smith lives in Brighton and is UK non domicile. She buys a UK residence worth £15m million and uses an offshore company for the purchase of the property in order to keep it outside of the charge to UK inheritance.

The company is now subject to ATED and currently will have a liability to pay an annual tax of £70,000. In addition, capital gains tax at 28 per cent will be chargeable on gains accruing after the 6 April 2013, on any subsequent disposal of the property irrespective of the fact that it is Mrs Smith primary residence. It is also worth noting that Stamp Duty Land Tax will be charged at a higher rate of 15 per cent (rather than a conventional rate of 7 per cent)

Alternatively, if Mrs Smith had decided to buy a property in her own name ATED would not apply and there would be no CGT on the disposal of the property, as it would be her main residence. Plus SDLT would be payable at the standard rate.

However, on her death even though she is a UK non domicile IHT would be charged on the property with the potential IHT bill being up to £8m.

Unlike a mansion tax, of which the primary role was to raise tax revenue from wealthy property owners, this is a more targeted tax, but one that will have major consequences, particularly for wealthy non UK domiciles owning UK property.

In most situations a cost benefit analysis will be required to determine whether restructuring to avoid these new taxes is the best way forward or whether they are an acceptable cost for the benefit of avoiding UK IHT.

Restructuring, however, may be complex with costs likely to include legal fees, corporation tax and possibly CGT. For those looking at new acquisitions the issues are far less complex and the solution may be as simple as personal ownership and any resulting IHT exposure dealt with through  appropriate levels of life assurance held in trust.

Tony Mudd is divisional director of development & technical consultancy at St James’s Place



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