Andrew Dore ACA, ATII, explains the Annual Tax on Enveloped Dwellings and what you need to look out for from changes to the tax bands.
When the Annual Tax on Enveloped Dwellings (“ATED”) was first announced there was a lot of interest from clients owning high value properties in limited companies. This interest has been resurrected and heightened by the announcement that the tax will be due on properties worth £1m from 1 April 2015 and £500k from 1 April 2016 – at these levels a lot of additional companies (mainly property rental companies) will be impacted by this regime. Many companies will need to make returns without necessarily paying the tax.
What is ATED?
ATED is a tax levied on companies (wherever registered) or partnerships where a limited company is a partner which own UK residential property worth more than the threshold. Tax is payable annually in advance. The return period runs from 1 April and returns are due and the tax is required to be paid by 30 April. There are special rules where a property comes within the regime or its status changes during a year (e.g. purchases and sales) and for the first year a property is within the regime due to the new £500k and £1m bands.
The rates of taxation
The amount payable varies based on the value of the property as set out below:
The tax payable for each band will increase each year in line with the CPI rate of inflation and the table above shows 2014/15 tax for properties valued above £2m.
A case of valuation
The valuation date required for ATED is as at April 2012 so companies now coming within the regime will need to make/obtain retrospective valuations. The valuation is self assessed and there are tax geared penalties if HMRC establish that a valuation places a property in the wrong band. Where a property is valued within 10% of a threshold, HMRC can be asked to confirm the value band the property falls into. The valuation will be used for 5 years and a further valuation will be required in April 2017 and every 5 years thereafter.
Where a limited company owns a UK dwelling worth more than the threshold and tax is due, an ATED return is required for each property. Reliefs are available from the tax but they can only be claimed in an ATED return. If no return is made but a return was due penalties will be charged even if available reliefs would reduce the tax to nil.
There are certain exemptions from the regime which may mean a return does not require to be completed, notably charitable companies using the dwelling for charitable purposes.
Under normal circumstances each flat in a block of flats will be treated as a separate dwelling. The following are not treated as dwellings for ATED purposes:
Student halls of residence
Boarding school accommodation
Companies owning UK dwellings will need to consider properties on a property by property basis to establish if reliefs are available. A dwelling might get relief from ATED if it is:
Let to a third party on a commercial basis and isn't, at any time, occupied (or available for occupation) by anyone connected with the owner
Part of a property trading business and isn't, at any time, occupied (or available for occupation) by anyone connected with the owner
Part of a property developers trade where the dwelling is acquired as part of a property development business the property was purchased with the intention to re-develop and sell it on and isn't, at any time, occupied (or available for occupation) by anyone connected with the owner
A farmhouse, if it is occupied by a qualifying farm worker who farms the associated farmland, a former long-serving farm worker or their surviving spouse or civil partner
For the use of employees of the company, for the company's commercial business and where the employee does not have an interest (directly or indirectly) in the company of more than 10%, the employee's duties must not include services for any present or future occupation of the property by someone connected with the company, the relief is also available where a partner in a partnership does not have an interest of more than 10% in the partnership
Open to the public for at least 28 days per annum, if part of a property is occupied as a dwelling in connection with running the property as a commercial business open to the public, the whole property is treated as one dwelling and any relief will apply to the whole property
A dwelling acquired by a financial institution in the course of lending
Owned by a provider of social housing
Additional aspects of the legislation
The legislation has special provisions that deal with/catch many unusual situations (e.g. joint ownership by company and individual/trust/partnership).
There are unpleasant “look forward” and “look backward” provisions where a property is occupied by an individual connected to the company and advice should be taken before a connected person occupies a property.
In addition to the annual tax a new CGT regime applies to dwellings where ATED is payable.
The legislation is lengthy (80 sections) and HMRC's explanatory booklet runs to 90 pages so it is important to take advice if you feel it may apply – it's a lot more complex than this overview! Get in touch to request a free review to understand the exposure of your property portolio to this tax.
The content of this post is up to date and relevant as at 28/10/2014.
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