ATED: Time for returns, re-valuations and reviews
The Guardian published a story recently with the stark headline "£220,000: the price super-rich will pay to keep their privacy". Reading below the banner, the newspaper was highlighting the Annual Tax on Enveloped Dwellings (ATED) charge and the revenue it brings in. But is ATED only about privacy for the super-rich and, if you are an ATED payer, what should you be considering?
What is ATED?
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 was subsequently reduced last year to properties valued at £500,000 or over. The property needs to be valued as at April 2012 (or its acquisition if later). This valuation determines what "band" it falls into and how much tax is payable. As the band has become a lot lower, many who hold properties in this way may find thatthis applies to them too.
Paying the charge
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 £3,500 if the property is valued between £500,000 and £1m to the aforementioned £220,000 for properties valued over £20m (actually, it's £220,350!) must also be paid in that time.
Exemptions and reliefs
There are a number of exemptions and reliefs which can be claimed. The main one is if the property is let out on an arms'-length commercial basis throughout the chargeable period. This reduces the tax to nil although a return still needs to be submitted. Caution is needed if claiming this relief – you need to check that the tenancy is properly arms'-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!
Re-valuations are now due
April 2017 also marks a watershed. Since ATED was introduced in 2013, the banding has related to the value of that property as at April 2012 (or its acquisition date, if later). A new valuation for the property is now required as at April 2017. This valuation will be the one used to determine the banding for any returns for the five years from April 2018. It is advisable to get formal surveyor's valuations, so 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.
De-enveloping as a restructuring option
ATED taxpayers may well be thinking about whether it is worth continuing to hold UK residential property in their company. In particular, there are tax changes coming into force in April which will "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. The Guardian focused on the issue of privacy and this is important for many people. 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.
It's time to check that you have your upcoming ATED return in hand:
- Have you instructed your solicitor or accountant to submit it?
- 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?
- Have you considered instructing a valuation for returns from 2018?
- Finally, have you thought about – in light of the tax changes and your own situation – if holding the property in the company still makes sense? Given the need for a new valuation after this April, it is worth reviewing how the property is owned? There may be savings to be had in the long-run!