Thread by @DanNeidle

ATED is an obscure tax, that almost no non-specialists have heard of. The fact it exists is a policy failure, and the fact people are paying it is even more of a failure. Therefore we should raise it. taxpolicy.org.uk/2022/11/04/ated

#tax #ATED

We all pay stamp duty when we buy a house. But there’s a well-known trick: have your house owned by a company – a special purpose company that does absolutely nothing else (often called “enveloping”). Then you sell the shares in the company, and the buyer pays no stamp duty.

This was revealed to an incredulous world in the early 2010s. In a sane world, the “loophole” would’ve been closed by simply applying stamp duty to the sale of the shares...

But instead, anyone exploiting it and buying residential real estate held by a company was stung with an annual tax – the “annual tax on enveloped dwellings” introduced in 2013 – ATED.

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 £100m+/year

There are around 5,000 residential properties still held in envelopes (including about 100 properties worth more than £20m).

Why are people stubbornly keeping their homes enveloped, despite ATED?

Sometimes to hide the identity of owners (whether because of security concerns or more malign reasons) – although this will now be harder to do.

Sometimes simply because ATED is way too small to undo the stamp duty saving from enveloping. The tax applies in bands like this:

Which means that the gap between stamp duty and ATED is fairly dramatic, particularly at the high end.

So ATED is too low to do the job it was designed to do. The enveloping "loophole" is still worthwhile, and the more expensive the property, the more worthwhile it is.

ATED currently raises £111 million. If we triple the rate, we should be at the point where the enveloping trick no longer saves tax. I estimate we'd raise around £200m (in increased stamp duty and/or ATED).

More here: taxpolicy.org.uk/2022/11/04/ate…

And if you like reading about obscure taxes, you can subscribe here: taxpolicy.org.uk/subscribe