ATED: Returns are now due

Posted by Sophie Cisler on
The window for the submission of this year's Annual Tax on Enveloped Dwellings (ATED) returns is now open. If you own a property above a certain value by way of a company, you should consider whether you need to file a return. The deadline for most properties will be by the end of April 2018. 

ATED: The Basics

ATED was brought in in 2013. It is payable by UK resident and non-resident "non-natural persons" – basically companies – who own a UK residential property above a certain value. Initially, it only applied to properties valued at £2m or over in April 2012; this has since been reduced to properties valued at £500,000 or over.  The property needs to be valued as at April 2017 (or its acquisition if later). This valuation determines what "band" it falls into and how much tax is payable.

Note that this year's return is the first year that the valuation needs to be at April 2017 – in previous years, you could rely on the April 2012 value. Many properties will therefore require an updated valuation to ensure that they are slotting into the correct band. It is advisable to get a formal surveyor's valuation, as this evidence can be produced to the Revenue if the valuation is ever challenged. Desktop valuations (no access needed) should be possible if owners have full details about the property, such as previous valuations, floor plans and photographs – this will also be much cheaper.

Returns

Entities subject to ATED need to submit a return every year at the beginning of the "chargeable period", which starts in April. The return must normally be filed within 30 days of the chargeable period, so by the end of April. The appropriate tax – which ranges from £3,600 if the property is valued between £500,000 and £1m to a hefty £226,950 if the property is worth more than £20m – must also be paid within that time. Otherwise, penalties and interest can be levied.

There are a number of exemptions and reliefs which can be claimed. The main one is if the property is let out on an arm's-length commercial basis throughout the chargeable period. This reduces the tax to nil. Caution is needed if claiming this relief – you need to check that the tenancy is properly arm's-length and for the whole of the chargeable period. If someone "connected" to the owning company, such as a director, shareholder or their relative, occupies the property, it will become chargeable for the period of that occupation. This can be difficult to calculate and good records should be kept!

Remember too that, even if you are claiming a relief, you still have to file a return. If you do not, or do so out of time, the Revenue may well levy penalties, even if there is no tax to pay.

Online

This year also marks the transition to the online submission of returns. Although the online system was meant to be in place for last year's return, there were so many problems with implementation that many people continued to use the more straightforward paper returns. These have now been phased out entirely. Accordingly, solicitors and accountants will need to create an online profile for their clients in order to process the application and pay the tax.

Restructuring?

ATED taxpayers may well be thinking about whether it is worth continuing to hold UK residential property in their company. In particular, significant tax changes came in last year which "look-through" the company structure to the ultimate beneficial owner of any offshore entity owning UK residential property. Upon that owner's death, the property will form part of their UK estate and potentially be chargeable to UK Inheritance Tax. This signifies a major change, as one of the key attractions for owning UK residential property in this way meant that previously it was outside of the scope of UK Inheritance Tax. "De-enveloping" such properties – i.e. transferring them to personal ownership – is becoming increasingly popular. There are, however, a range of additional taxes which may come into play and this might not be a suitable option for everyone.

On the other hand, there may still be good reasons to hold the property in the company. In the UK, the owner of a property is listed publicly on the Land Registry and holding the property by way of a company gives some comfort that your own name is not open to the public in this way. Additionally, if you do rent out the property and so can claim the relief, the ATED charge may well be moot – you'll need to remember to file the return and should get a new valuation for completeness, but these costs and time may outweigh the efforts needed to undertake any formal restructuring.

Next Steps

It's time to check that you have your upcoming ATED return in hand:

  • Have you obtained an up-to-date valuation?
  • Have you instructed your solicitor or accountant to prepare and submit your return?
  • Do you have all the information needed to check you can claim any reliefs?
  • Do you have the money ready to make payment by the end of April?
  • Finally, think about whether – in light of the tax changes and your own situation – holding the property in the company still makes sense. There may be savings to be had in the long-run!

For further information please contact Mark Spash or Sophie Cisler in the Succession and Tax team. 

About the Authors

Photograph of Sophie Cisler

Sophie is a Solicitor in the Succession and Tax team, based in London.

Sophie Cisler
Email Sophie
0207 014 5258

View profile
Photograph of Mark Spash

Mark is the Regional Senior Partner for the firm's London office. He has a wealth of experience advising individuals, families and trustees on a wide range of complex tax and succession planning issues both onshore and offshore.

Mark Spash
Email Mark
020 7014 5248

View profile