Tax on Residential
Property Owned by a Company
This Bulletin is aimed at limited companies who own, develop or let residential property
Annual Tax on Enveloped Dwellings (ATED)
The ATED charge is a tax on residential property which is owned through a corporate vehicle. It was introduced in 2013 primarily 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 has 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.
The tax is an annual charge, based on the property value on the later of 1 April 2017 or the acquisition date, for properties worth over £500k. Valuations apply for a period of 5 years, so it should be noted that the valuation date of 1 April 2017 is applicable from this year, rather than 1 April 2012 as previously. The valuation date of 1 April 2017 applies irrespective of when the property was acquired, unless acquired after this date. Therefore, if a company has previously been submitting an ATED return, it will need to revalue the property as at 1 April 2017. HMRC do not require a formal valuation for the property, but it is expected that there is a reasonable basis upon which the valuation is arrived at.
The charge is a fixed amount based on the band in which the property value falls, and currently starts at £3,600 for a property valued between £500k and £1 million. Please note that the market value may be substantially different to the book value in the company’s accounts.
In addition to the ATED charge there are two further taxes the 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);
- Capital Gains Tax at 28% on disposals – note this is higher than the corporation tax rate which would otherwise apply (again for properties worth over £500k from April 2016).
The remaining article concentrates on the ATED charge.
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 available which depend on the nature of the business of the company which owns the property. The reliefs cover 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 however this is subject to several conditions.
The important point to note however is that these reliefs are not automatic and must be claimed. Even if the company is not liable to pay the annual charge, a nil return must still be submitted to HMRC.
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 overpaid.
Returns for the year to 31 March 2019 must therefore be filed by 30 April 2018 and any tax paid by the same date.
This year ATED returns must be filed using HMRC’s ATED online service, and they will no longer accept returns by the previous methods. This means that a company must register for the ATED online service, in order to submit the return themselves or to appoint an agent who will submit it on their behalf. It is important to register for this new online service as soon as possible, particularly if the company wishes an agent to submit their ATED return, given the filing deadline of 30 April 2018.
A pre-banding check with HMRC is available where the property value is within 10% of an ATED band although 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 residential property worth over £500,000 then you need to seek advice, please contact our Tax Director Jenny Marks.
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