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£500,000 company owned properties subject to ATED from 1st April 2016

By Lesley Stalker on 23 March, 2016

High value residential property which is owned by a company has been subject to an additional tax, the annual tax on enveloped dwellings (ATED), since April 2013. When it was first introduced, this tax applied to property having a value of more than £2m, and the aim of the tax was to reduce the use of companies for stamp duty avoidance purposes in relation to high value property purchases. The charge was subsequently extended to property having a value in excess of £1m and from 1st April 2016, it will be further extended to company-owned UK residential property worth over £500,000. It is very easy for companies owning properties in London and the south east to exceed this £500,000 threshold, due to the high average property prices in the area, and can result in additional tax of between £3,500 and £23,350 to pay each year.

Property investors should consider the following:

Does ATED apply to your property?

The first tests are whether the property is a residential property which has a value in excess of £500,000, and is owned by a company (or a partnership with one or more corporate members). If the answer to each of these questions is yes, then ATED will apply for 2016 if the value of the property was £500,000 or more on either 1st April 2012, or the date it was acquired if later.

Note the property valuation will need to be revised in 2017, and this revised value will apply for the years from 1st April 2018 to 31st March 2023.

If ATED applies, what reliefs and exceptions are available?

You may be able to claim relief if your property is:

  • Let to a third party on a commercial basis and isn’t occupied, or available to be occupied, by anyone connected with the owner;
  • Open to the public for at least 28 days a year;
  • Part of a property development business and is being developed for resale;
  • Being used to provide living accommodation to qualifying employees;
  • A farmhouse occupied by a farm worker;
  • Providing registered social housing.

When does the ATED return need to be filed?

If ATED applies to your property, even though relief may be available, a return must be submitted to HMRC in the tax year to which the charge relates. This means that if your property is subject to ATED from 1st April 2016, a return must be filed by 30th April 2016, together with the payment due. If you are able to claim one of the reliefs outlined above, you must still file a return, and claim the relief, to ensure that no payment is due.

Are there any penalties for late filing?

A £100 penalty will apply if you are late in filing the ATED return, with no period of grace.

Following that, for the first 90 days of late filing, a further penalty of £10 per day will be charged, following which a charge will be made of either £300 or 5% of the tax due, whatever is the higher figure.  After 6 months, the penalties can be as high as £1,300.

How to submit an ATED return

Property owners paying ATED for the first time will need a special reference number, which should be quoted at the time of making payment. Initially obtaining this number takes approximately ten days and it is granted upon receipt of the ATED return.

If you are eligible for ATED relief, a return must be submitted in order to make a claim. This process is relatively complex and a separate relief declaration return needs to be filed for each type of relief that can be claimed. For more detail on how to claim ATED relief, read our earlier blog or contact us for more specific advice. https://www.rjp.co.uk/2014/05/27/essential-tax-relief-details-property-owners-affected-ated/

I am affected by ATED from 1st April, what steps should I take?

Property owners who now need to file an ATED return and either make a payment, or claim relief, need to act quickly.  If you are already registered for ATED you will need to file a return and make any payment due by 30th April. If you are not already registered, you will need to file a return and await your reference number from HMRC. This should be issued within 10 working days of submission of the return, following which you will need to make any payment due by 30th April. So this is a tight timescale for everyone falling within ATED, and an extremely tight timescale for anyone registering for the first time.

What if I buy a property during the year?

If you buy a property after 1st April 2016 and it falls within ATED (even if relief is due), you have 30 days from the date of acquisition to file an ATED return and make any payment due. If you are a property developer, then you have a more generous timescale – you must file a return within 90 days of completing the property development.

We can help clients with their filing requirements but we recommend that anyone who is affected contacts us as soon as possible to avoid the possibility of a late filing penalty.

If you would like to discuss whether your property is subject to ATED and/ or need help filing your returns, please contact Victoria Rampton by emailing vr@rjp.co.uk.

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