Changes to Tax on Residential
Property Owned by a Company
Annual Tax on Enveloped Dwellings (ATED)
The ATED charge is a tax on residential property owned through a corporate vehicle. It was introduced to prevent non-resident investors from avoiding Stamp Duty by owning their UK residence through a company. The legislation is drafted very widely however and will have implications for UK investors too.
The charge affects UK residential property owned wholly or partly by a company. It also affects UK residential property owned through a partnership which has a corporate member. Each dwelling is considered individually, subject to conditions.
There are three different taxes a property may be subject to:
- 15% Stamp Duty Land Tax on the acquisition of the house/flat (applies to all purchases over £500,000 since March 2014);
- An annual charge based on the property value on the later of 1 April 2012 or the acquisition date (for properties worth over £2m but falling to £1m in April 2015 and £500k in April 2016). The charge is a fixed amount based on the band in which the property falls, and currently starts at £15,400 for a property valued between £2 and £5 million.
- Capital Gains Tax at 28% on disposals – note this is higher than the corporation tax rate which would otherwise apply (for properties worth over £2m but falling to £1m in April 2015 and £500k in April 2016).
This article concentrates on the second of these charges.
The ATED charge applies to residential dwellings individually. The definition of a dwelling is complex however HMRC have confirmed that care homes, hotels, boarding school accommodation etc. are NOT dwellings for this purpose.
Reliefs and Exemptions
There are a number of reliefs which depend on the nature of the business of the company owning the property. These include property rental businesses, property developers, property traders, farmers etc. There is also a relief where the residence is occupied and used for the purpose of the trade, but subject to conditions for example the occupier cannot own 10% or more of the business or the property.
The important point to note however is that these reliefs are not automatic and must be claimed.
Charitable companies are exempt.
ATED returns must be filed, and the annual charge paid, within 30 days of the start of a period which runs from 1 April to 31 March each year. An amended return must be filed if circumstances subsequently change during the year (for example, if the property is sold) in order claim a refund for tax over paid.
Returns for the year to 31 March 2016 must therefore be filed by 30 April 2015 and any tax paid by the same date. However, where the property is only within the ATED regime due to the reduction in bandings, the filing deadline is extended to 1 October 2015, with the tax due by 31 October 2015.
A pre-banding check with HMRC is available where the property value is within 10% of an ATED band but this is not available if a relief is claimed.
Penalties apply even where no tax is due so reliefs MUST be claimed in order to avoid penalties. The following penalties apply:
- £100 late filing penalty;
- 3 months overdue – £10 daily penalty applies (subject to a maximum of £900);
- 6 months overdue – an additional charge of 5% of the tax due or £300, whichever is the greater.
This is a broad summary of a complex topic which could affect many investors. If your company owns a residence worth over £500,000 then you need to seek advice, please contact our Tax Director Jenny Marks.