Beware of the Additional Tax on Residential Properties

December 12, 2017

Many investors acquire residential properties through corporate bodies to avail of the capital, inheritance and other tax gains as opposed to purchasing in their personal capacity. However there is an additional tax which many purchasers may not necessarily be aware of which is imposed on such acquisitions called the Annual Tax on Enveloped Dwellings (ATED).

The ATED is an annual tax payable mainly by companies that own UK residential property valued at more than £500,000. This is additional to SDLT which may payable on the purchase which can substantially increases costs for investors who may not otherwise be aware of this subsisting cost.

Does ATED apply to me?

If you have purchased, are in the process of purchasing or plan to purchase a residential property in the UK in the name of a corporate body then it is likely the answer to the above question will be ‘Yes’.

You must submit an ATED return if the following apply:

  1. Your property is classified as a “dwelling” which all or part of it is used, or could be used as a residence, for example a house or flat. The following are not classed as dwellings: hotels, guest houses, boarding school accommodation, hospitals, student halls of residence, military accommodation, care homes, and prisons.
  2. Your property is located within in the UK.
  3. Your property was valued at more than:
    1. £2 million on 1 April 2012, or at acquisition if later, for returns from 2013 to 2014 onwards;
    2. £1 million on 1 April 2012, or at acquisition if later, for returns from 2015 to 2016 onwards; or
    3. £500,000 on 1 April 2012, or at acquisition if later, for returns from 2016 to 2017 onwards.
  4. Your property is owned completely or partly by a:
    1. company;
    2. partnership where one of the partners is a company; or
    3. collective investment scheme – for example a unit trust or an open ended investment vehicle.

If you find yourself satisfying all of the above mentioned criteria then you may want to read on.

Starting to worry about being liable for yet another tax? 

You will be glad to know there is tax relief available on ATED and you may be able to claim relief for your property if it is:

  1. let to a third party on a commercial basis and is not occupied (or available for occupation) by anyone connected with the owner at any time;
  2. open to the public for at least 28 days a year;
  3. being developed for resale by a developer;
  4. owned by a property trading business as the stock of its business and used for the sole purpose of resale but cannot be occupied by owners of that business or anyone connected to the owners;
  5. repossessed by a financial institution in the course of lending;
  6. acquired under a regulated Home Reversion Plan (you sell all or part of your property for a cash lump sum, regular income or both and you are granted a lifetime lease for the property);
  7. used by a trading business to provide living accommodation to certain qualifying employees;
  8. a farmhouse occupied by a farm worker or a former long-serving farm worker; or
  9. owned by a registered provider of social housing.

Are you caught by ATED?

An ATED return will need to be completed and payment made by 30 April each year. The ATED periods run from 1 April to 31 March each year. If you purchase a property subject to ATED on a date after 1 April in an ATED period, the return and payment are due within 30 days of purchase date. If the property is newly built then the return does not have to be submitted until 90 days of the purchase date. If a newly purchased or built property qualifies for an ATED relief and this relief has already been claimed in the chargeable period, then no further return will be required to be submitted. The current rates of annual charges for property values are as follows:

  • More than £500,000 but not more than £1 million = £3,500
  • More than £1 million but not more than £2 million = £7,050
  • More than £2 million but not more than £5 million = £23,550
  • More than £5 million but not more than £10 million = £54,950
  • More than £10 million but not more than £20 million = £110,100
  • More than £20 million = £ 220,350

If you don’t complete and send HMRC an ATED return or payment, or you send it late or make a mistake on it, you will have to pay a penalty and may have to pay interest. If you know you might need to pay ATED for a property it is best practice to complete and send a return. If there’s a relief available that means that you don’t have to pay ATED, but you can only claim it by completing and sending an ATED return to HMRC. A late filing penalty will still apply even if there is a relief that reduces the liability to nil. If you own a number of dwellings, each of which is liable to make a payment of ATED, you will need to complete one return per dwelling.

This article has been produced for general information purposes and further advice should be sought from a professional advisor.

Shane Conlan, Solicitor, Property Team, Cleaver Fulton Rankin, Solicitors.