Have you recently purchased a UK residential property with a value of more than £500,000 through a company or other corporate vehicle?
If so, then you will almost certainly be within the Annual Tax on Enveloped Dwellings (“ATED”) regime, and you need to make sure that you file a return with HMRC as soon as possible.
If you do not file a return, then even if one of the reliefs apply you will be charged penalties for late filing. If you do not pay the tax on time then you will also pay interest charges on the unpaid tax.
You will also need to file an ATED return if you have recently incorporated a partnership that owns residential property, or you have transferred property you previously owned personally into a company.
When does ATED apply?
The tax is potentially payable on any individual dwellings in the UK valued at more than £500,000, which are owned by companies, LLPs and partnerships with corporate members. It doesn’t matter if the company or other corporate entity is a UK company or an overseas company, the tax will still apply. Properties owned by trustees who are acting as nominees or holding the property on bare trust for an individual should not be subject to the charge.
Where a property is part-residential and part-commercial, the residential element should be valued separately. Each self-contained flat within a block represents a separate dwelling.
If a company acquires a property part-way through a year then the company will come within the ATED charge from the date of purchase and is required to file an ATED return within 30 days of the purchase date.
If you make a disposal of a property part-way through the year and you have already paid your ATED charge for the full year then you should be able to claim a refund of part of the annual charge, since it is calculated on a daily basis.
How much tax do I pay?
The annual tax charges for the period for 1 April 2020 to 31 March 2021 are set out below:-
|Property value||Annual chargeable amount|
2020 to 2021
|More than £500,000 but not more than £1 million (introduced from 1 April 2016)||£3,700|
|More than £1 million but not more than £2 million (introduced from 1 April 2015)||£7,500|
|More than £2 million but not more than £5 million||£25,200|
|More than £5 million but not more than £10 million||£58,850|
|More than £10 million but not more than £20 million||£118,050|
|More than £20 million||£236,250|
What about reliefs?
Full relief is available for genuine property investment and development businesses. The most common relief will be where a property is purchased with a view to letting it out for an arm’s length market rent to an unconnected tenant. However, in order to claim any of the reliefs, it is still necessary to file a return on time.
If you have recently bought an investment property through a company then you still need to submit a return within 30 days of the date of purchase in order to claim the relief.
What value do I use?
If you have recently acquired the property through a company then the valuation will be based on the purchase price.
In all other cases, the valuation date will be 31 March 2017, or the purchase date, if later. This value will determine whether the property falls within the ATED regime.
If the company has owned the property for some time and you believe that the current value is likely to be in the region of £490,000- £500,000 we suggest that you take a prudent approach when valuing the properties and if in doubt a professional valuation should be undertaken, otherwise the company may be open to a challenge from HM Revenue & Customs.
If the property is valued at £490,000 or more on a directors’ valuation or estate agents value, we would recommend that you consider a RICS professional “red book” valuation and make a return so that HM Revenue & Customs can challenge the value if they so choose. However, if reasonable care has been taken in arriving at a value as at 31st March 2017, no penalty should arise.
Similarly, if corporate agents overseas consider that the property held through the company they administer may be approaching this level then they should seek advice from a professional valuer. Any liability to the ATED charge falls to the company itself and the responsible officers of that company are therefore required to arrive at a realistic valuation, which can be supported in the event of a challenge by HMRC and to submit a return if the charge applies.
If you have recently bought UK residential through a company we suggest that you review your property holdings and consider whether ATED applies this year. Do not delay.
If you would like help in filing your ATED return or you have any questions about whether the tax applies to you then please give Pauline Hudd a call using the details below. She can assist on any Stamp Duty, SDLT or ATED matters.