A bid to raise tax from homebuyers wrapping their property purchases in a company to avoid tax has back-fired for the British government.
The measure was launched in 2012 by HM Revenue & Customs amid promises of raising significant amounts of tax.
But the latest official figures reporting how the policy is faring show that the government’s tax hopes were misplaced.
The government saw last year’s tax receipts from the Annual Tax for Enveloped Dwellings (ATED) drop from £178 million to £175 million – the first fall since the scheme started.
This reduced tax-take is despite the government spreading the property net by including homes worth more than £500,000 and increasing the rate of tax by half.
£70 million tax shortfall
The tax forecast was £90 million for homes worth between £500,000 and £2 million – but the actual amount received was only £21 million.
In 2012, the government claimed thousands of offshore owners were buying up homes in the UK – mostly in London – with companies.
In 2016-17, statistics show 7,300 homes, or 0.035 of all privately-owned homes in England and Wales – were owned in companies falling under the ATED scheme.
Many owners are moving their homes out of company ownership to avoid the tax, says Naomi Heaton, of property consultancy London Central Portfolio.
Non-doms drop property companies
““While the falling number of owner-occupied properties in corporate wrappers is good news for the government, it is now being accompanied by falling tax revenues. Meeting the government objective, the ATED has increasingly encouraged owner occupiers to hold properties in their own names or drop them out of corporate vehicles,” she said.
“This first sign of falling revenue may come as a surprise to the government who significantly overestimated by three times the number of owner–occupied properties held in corporate wrappers at the sub-£2 million end of the market.
“With high establishment and running costs, the use of company structures has typically not been considered an option at these price-points. As a result, the government’s projected windfall of £90 million from properties between £500,000 and £2 million has failed to materialise with under a quarter of this collected.”