Friday, September 13, 2013

Annual Tax on Enveloped Dwellings due soon

Announced in the March 2012 Budget, the Annual Tax on Enveloped Dwellings (ATED) return -- called at the time the Annual Residential Property Tax (ARPT) -- is due by October 1st 2013. The corresponding tax liability has to be paid by October 31st 2013.

If all of the following criteria are met, an ATED return is required by 1 October 2013:
  • a company (other than a company acting as trustee of a settlement or as nominee), a partnership with corporate partners or a collective investment scheme which holds UK residential property, and
  • at least one single-dwelling interest was worth more than £2m on 1 April 2012 or at the date of acquisition if later, and
  • the single-dwelling interest was still owned on 1 April 2013
Certain reliefs are available that may reduce or negate the ATED annual charge but these must be claimed in the ATED return each year. Provided that a connected person is not permitted to occupy the property, relief can be claimed where a property:
  • is let to third parties on a commercial basis; or
  • is held as part of a property development business or a property trading business; or
  • is open to the public
If a new ATED-qualifying property is acquired, the owner has 30 days to notify HMRC – this is extended to 90 days for new-builds.

Future returns and ATED liabilities are due by 30 April (so the 2014/15 return must be submitted and any ATED liability paid by 30 April 2014). Adjustments required to already submitted returns may be made within 12 months of the end of the relevant chargeable period.

The ATED annual charges range from £15,000 to £140,000 per annum (and increasing in line with CPI every year) so it is essential that reliefs are claimed if they are due (see below):

Taxable value of the interest in propertyAnnual chargeable amount
£2,000,001 – £5,000,000£15,000
£5,000,001 – £10,000,000£35,000
£10,000,001 – £20,000,000£70,000

Moreover, the sale of an ATED-related property by a corporate owner after 5 April 2013 will cause some of the gain to be liable to capital gains tax. Payment will be due on 31 January following the end of the tax year in which the disposal occurred. The capital gains tax charge will replace the corporation tax charge on the ATED-related portion of the gain for UK resident corporate owners. This means that companies will have to calculate the corporation tax and capital gains tax due on a disposal of any property which has suffered the annual ATED charge at any time during its ownership.

Update March 2014: The government has now widened the scope of taxes on homes wrapped in corporate envelopes, hitting properties valued at £500,000 or more. Properties valued between £1m to £2m will be taxed at £7,000 a year from April 2015, while those valued at £500,000 to £1m will incur ATED at £3,500 from April 2016. The new measures also include extending the band at which homes are charged 15 per cent stamp duty land tax (SDLT) when first wrapped in a corporate envelope, from properties worth £2m or above to those valued at £500,000 or more.

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