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Are You Ready For ATED? Additional Tax On Residential Properties Owned Within A Company

April 26, 2017

Advice on ATED from Optimise Accountants

By Louise Misiewicz

Do you own properties in a Limited Company?

Are you aware of a new tax called ATED?

The Annual Tax on Enveloped Dwellings (ATED) is part of HMRC’s three-pronged attack against perceived tax avoidance by individuals who use companies (typically overseas companies) to acquire and own high-value UK residential property.

  • A rate of 15% SDLT on acquisition of properties by non-natural persons (as opposed to the usual 7% rate for homes of £2m or more);
  • An annual tax, known as ‘ATED’ (Annual Tax on Enveloped Dwellings), ranging from £15,000 to £140,000 depending on the value of the property, which will index annually in line with CPI;
  • Capital gains tax on sale on any growth in value of properties in this regime from April 2013, even for non-UK resident entities.

The annual tax element was originally estimated by HMRC to raise about £20m. Estimated numbers for the tax paid for 2012/13 is actually closer to the £100m mark, and so in that respect it has been seen as a success.

HMRC states that the property will be a dwelling if all or part of it is used, or could be used as a residence, for example, a house or flat. It includes any gardens, grounds and buildings within them.

Some properties aren’t classed as dwellings. These include:

  • hotels
  • guest houses
  • boarding school accommodation
  • hospitals
  • student halls of residence
  • military accommodation
  • care homes
  • prisons

What information is required?

The ATED is a tax payable on high-value dwellings which are situated in the UK and held within such “envelopes”. It came into effect from 01st April 2013 and will be payable for each ATED period.

An “ATED period” runs from 1st April to 31st March each year.

The ATED does not apply to dwellings owned directly by individuals or trusts. It is only relevant where a property is owned within a Limited Company.

ATED applies to a dwelling which was valued at more than £1 million on 01st April 2012 (or at the date of acquisition if later). FA 2013, s.94. This limit is reduced to £500,000 from 01st April 2016.

Property values established at 01st April 2012 will be used for 5 years; all properties within the ATED will need to be valued again at 01st April 2017. These values will then stand for the next five years and so on. FA 2013, s.102

An ATED return will need to be completed if the below criteria is met:

  • dwelling is situated in the UK;
  • It was valued at more than £500K
  • It is owned either by;
    • A company;
    • A partnership where one of the partners is a company; or
    • A collective investment vehicle (such as a unit trust). FA 2013, s.94

As HMRC show that an ATED return must be made within 30 days of the date on which the property first comes within the charge to ATED for any chargeable period. Where the single-dwelling interest is held on the first day of the chargeable period, specifically 01 April each year, the return must be filed by 30 April in the year of charge. For example, if the chargeable person owned a property on 01 April 2017, a return must be submitted by 30 April 2017.

You must make a separate return for each dwelling where any ATED liability is due.

As HMRC shows that there are reliefs provided that your property is one of the below list:

  • let to a third party on a commercial basis and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner
  • open to the public for at least 28 days a year
  • being developed for resale by a property developer
  • owned by a property trader as the stock of the business for the sole purpose of resale
  • repossessed by a financial institution as a result of its business of lending money
  • acquired under a regulated Home Reversion Plan
  • being used by a trading business to provide living accommodation to certain qualifying employees
  • a farmhouse occupied by a farm worker or a former long-serving farm worker
  • owned by a registered provider of social housing

Most people reading this article, as property investors, will be pleased to know that the ATED tax will not apply but you will still need to send in an ATED return using the online service

What are the ATED charges?

The ATED charge will be applied as such:

Property value 01st April 2017 to

31st March 2018

01st April 2016 to

31st March 2017

£500,000-£1m £3,500 £3,500
£1m – £2m £7,050 £7,000
£2-£5m £23,550 £23,350
£5m-£10m £54,950 £54,450
£10m-£20m £110,100 £109,050
£20m+ £220,350 £218,200

Source of information:

HMRC penalties for late filing of the return

Days late submitting the ATED form Penalty
Day 1 £100
3 months late Daily penalty £10 per day for up to 90 days (max £900)
6 months late Greater of 5% tax due or £300
12 months late Greater of 5% tax due or £300

HMRC penalties for late payment of the ATED liability

Days that payment is overdue Penalty
30 days 5% of the ATED tax due
6 months late 5% of the ATED tax due
12 months late 5% of the ATED tax due

Non-resident CGT (“NRCGT”)

With effect from 06 April 2015, all non-UK resident persons (including companies) are subject to NRCGT on the disposal of UK residential property to the extent any gain realised relates to a period since 06 April 2015. The company will usually pay NRCGT on any gain which accrues on or after 06 April 2015 but a company can make an irrevocable election to pay NRCGT on another basis (such as the whole of the gain on a time apportionment basis).

The applicable rate of NRCGT for companies is 20%. NRCGT will only apply to the extent that the gains are not subject to the ATED-related gains charge mentioned below. The relevant valuation date for NRCGT is 05 April 2015.

ATED Related CGT

As more properties are brought into the scope of ATED, they will also potentially come into the scope of ATED-related CGT on any later disposal. The ATED-related CGT charge will apply to any post-April 2013 gains to the extent the ATED regime applied to the property during this period (i.e. ATED applied with no relief).

ATED-related CGT is charged at a rate of 28%. For new ATED band properties, the relevant valuation date is 05 April 2016.

CGT Anti-avoidance

If the company holding the property is a non-UK tax resident close company then, to the extent that any of the gain is not subject to ATED Related CGT or NRCGT, CGT may also be payable by virtue of the anti-avoidance provisions in the Taxation of Chargeable Gains Act 1992 which attribute gains to shareholders. If a shareholder is holding as trustee then there are further provisions which could attribute the gain to settlors or beneficiaries.

The introduction of ATED, ATED-related CGT and NRCGT has led to a complex array of taxes for companies holding UK residential property. The disposal of a property held by a non-UK company could potentially give rise to three different CGT charges, all of which could require different valuation dates.

ATED was first introduced via The Finance Act 2013 (as amended by sections 109 and 110 of Finance Act 2014, and sections 70 to 73 of Finance Act 2015 and sections 134 to 136 of Finance Act 2016)

The Annual Tax on enveloped Dwellings (Returns) Regulations 2013 (SI 2013/1844)

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Telephone: 0115 939 4606
Email: simon@optimiseaccountants.co.uk