The Annual Tax on Enveloped Dwellings (‘ATED’) came into effect from 1 April 2013. It applies to high value residential properties held within “wrapper” vehicles such as companies, partnership with companies and collective investment scheme. Originally when the regime was introduced it was applied to any dwelling which were valued at over £2million on 1 April 2012, or on acquisition if later. Since then the thresholds have reduced with properties which are valued at over £1million on 1 April 2012 (or on acquisition later) falling within the regime from 1 April 2015 and will fall again to include properties valued at over £500,000 from 1 April 2016.
There are a number of exemptions that can apply from the ATED charge, in particular Property Investment business, Property Developer, Charity and Farmhouse. However in order to claim these reliefs an ATED return must be submitted in respect of the property. The failure to submit a return on time can result in filing penalties. Under s55 FA2009, a taxpayer is liable to a fixed penalty of £100 for failing to deliver a return by its filing date and a further penalty of £10 per day is due for each day that the failure continues during the period of 90 days thereafter. If the failure continues after the end of six months, the penalty is the greater of 5% of the tax due or £300. These penalties are however not due where the taxpayer can show that they had a reasonable excuse for the late filing.
The First Tier Tribunal recently heard the cases of Lucas Properties Limited and Monaco Group of Companies in respect of their ATED returns. In the first case, the company has been purchased residential properties since 2009 but was originally unaware that they need to file a return in order to claim for the exemption from the ATED charge. The company had acquired a property, that was potentially subject to ATED, on 29 November 2013 and therefore a return should have been made within 30 days of acquisition i.e. by 29 December 2014 and then a further return was due by 30 April 2014 in respect of the tax year 1 April 2014 to 31 March 2015. However, the company did not file any return in respect of the property until July 2014 and penalties totalling £1,400 had by then accrued. The company sought to argue against the penalties as they were unaware that they were required to submit ATED returns. However the Tribunal held that it was the responsibility of the company to keep abreast of legislation which affects its business and accordingly the penalty notices remained in place.
In a similar case, the Monaco Group had submitted an ATED return for the period 1 April 2012 to 31 March 2013. However, the ATED return only provided details of one property held by the company. An ATED return for a second property held by the Company was not submitted until 7 April 2014, by which time it was over 6 months late and penalties of £1,400 had again accrued. The taxpayer had argued that the notes referring to properties held on 1 April 2012 were confusing and he had initially misunderstood the completion of the forms and that the delay in HMRC in acknowledging the incorrect tax return had contributed to the error. However, again the First Tier Tribunal held that the penalties should be applied.
Both of these cases act as a reminder that even if no tax is due under the ATED regime, that filings must be made within the time limits to avoid unnecessary penalties. With the threshold continuing to drop, it will not be a huge surprise if other companies are also caught out by this compliance process.
For further information please contact the TaxDesk on 0845 4900 509 and ask for Priya Dutta.