ATED tax charge extended to catch properties worth £500,000

The Government has extended the Annual Tax on Enveloped Dwellings (ATED) charge on corporate holdings of UK residential properties to properties worth as little as £500,000. This follows on from the introduction of the ATED regime in April 2013 to properties worth more than £2 million. Priya Dutta answers the questions on everyone’s mind.

Who is subject to the charge?

Companies, partnerships with a corporate member and collective investment schemes (UK or non-UK) holding high value residential property. A company acting as a trustee of a trust or as nominee for an individual is exempt from the ATED charge. While reliefs are available (see below), these reliefs are only available where a return is made.

What is high value residential property?

Since 1 April 2013, residential properties worth more than £2 million held in a ‘corporate’ have been subject to the charge. From 1 April 2015 properties worth between £1 million and £2 million will also be caught. From 1 April 2016 the scope of the charge is widened to include properties worth more than £500,000.

How much is the charge?

The amount of the charge (subject to any reliefs) is based on the band the property value falls into. Broadly, the more the property is worth the higher the charge. The legislation provides that the charge but not the bands will increase by the consumer price index (CPI) each year. Thus the charge for the 2014/15 period will be slightly higher than those printed below. At the time of print we are still waiting for the revised charges to be published by HMRC.

  Property Value (£) Annual charge (£)
From April 2016 0.5 m – 1 m 3,500
From April 2015 1m – 2 m 7,000
Since April 2013 2 m – 5 m 15,400
5 m – 10 m 35,900
10 m – 20 m 71,850
20 m + 143,750

 

Tax advice should be sought before paying the ATED charge, which is due by 30 April. In particular, careful consideration needs to be given to how the charge will be funded by the corporate. In many cases, the corporate will not have sufficient income or retained reserves to pay the charge. Paying the charge itself may give rise to further tax charges.

Who qualifies for relief?

Relief from the charge is available in some instances where the property is used as part of a genuine business, for example:

  • A property letting business
  • A property trading business
  • A property development business
  • Dwelling opened up to the public e.g. houses of historical interest
  • Farmhouses
  • Properties occupied by employees

Even if a relief is available, an ATED return will need to be filed by 30 April. In many cases relief may be denied, particularly where the property is occupied by a non-qualifying person. For example, a property let to the corporate shareholder at a commercial rent will not escape charge to tax.

When are properties valued?

Under the current rules the first valuation date is 1 April 2012 and subsequent valuations are every five years from that date. (Naturally the valuation date may be later if the property is acquired after this date). Therefore properties held at 1 April 2012 do not need to be revalued until 1 April 2017, even if there has been a significant increase in value as a result of market conditions. A new revaluation will however be required following substantial acquisition or disposal in relation to the property. For these purposes substantial means £40,000 or more. Following the recent proposed introduction of the ‘£500,000’ and ‘£1m’ bands it remains to be seen whether new valuation dates will be introduced in relation to these new bands.

Should I de-envelope?

It may be possible to avoid future charges by de-enveloping the UK property. In many cases de-enveloping itself will give rise to further tax charges and so each position must be considered on its merits. Particularly, in relation to properties worth less than £2 million there is a window of opportunity to restructure property ownership to avoid charge.

We would be happy to advise further in this regard. Please contact the TaxDesk on 0845 4900 509 and ask for Priya Dutta.