Previously called Annual Residential Property Tax, the Annual Tax on Enveloped Dwellings (ATED) is a tax payable by companies, some partnerships and collective investment schemes that own high value residential property (an ‘enveloped dwelling’), which came into effect from 1 April 2013.
From 1st October 2013, the first ATED returns are to be submitted to HMRC and so it is important to consider whether this new tax affects you.
By virtue of being subject to the new ATED, properties will also become subject to a new CGT charge, discussed in more detail below.
How much is the ATED?
The charge is levied according to the value of a property, which for the year to 31st March 2014 is set as follows:
- £15k per annum on properties worth between £2m and £5m;
- £35k per annum on properties worth between £5m and £10m;
- £70k per annum on properties worth between £10m and £20m; and
- £140k per annum on properties worth over £20m
The Finance Act 2013 provides for increases each year in line with rises in the Consumer Prices Index.
The taxable value is the market value of the property on the most recent valuation date – 1st April 2012, each fifth anniversary of that date and the effective date of any substantial acquisition of the property by a person liable to ATED or the date of a substantial part-disposal of the dwelling.
If unsure whether the dwelling is valued at over £2m or any other of the band threshold figures it is advisable to obtain a professional valuation specific to ATED (which can be different from valuations for other purposes).
For borderline valuations HMRC can be asked to do a Pre Return Banding Check (PRBC). The criteria are that the applicant is not due a relief that will reduce the charge to nil and that the property falls within 10% of one of the thresholds (e.g. it is worth between £1.8m and £2.2m, £4.5m and £5.5m, and so on).
HMRC will aim to respond to any request for a PRBC within 30 days of receipt. It is of course advisable to leave more time than this before a return is due as delays are possible. HMRC’s response will only agree or disagree with your proposed ARPT band, or ask for further information, but will not give an opinion on the specific valuation of the property.
Are there any reliefs/ exemptions?
- The Finance Act 2013 outlines numerous exemptions and reliefs which allows genuine business activity to escape the ATED charge. HMRC has outlined some of the circumstances in which relief may be available, for example if the property is:
- Let to a third party on a commercial basis. The property must not be occupied by, or availablefor occupation to, anyone connected with the owner;
- Open to the public for 28 days or more peryear. If part of a property is occupied as a dwelling in connection with running the property as acommercial business open to the public, the whole property is treated as one dwelling and anyrelief will apply to the whole property;
- Part of a property trading business. The property must not be occupied by, or available foroccupation to, anyone connected with the owner;
- Part of a property developer’s trade. The dwelling must be acquired as part of a propertydevelopment business with the intention to re-develop and sell it on and cannot be occupied by,or available for occupation to, anyone connected with the owner;
- For the use of employees of the company, for the company’s commercial business. Theemployee must not have any interest in the company of more than 10 per cent. Theemployee’s duties must not include services for any present or future occupation of the propertyby someone connected with the company. This relief is also available to a partner with aninterest of not more than 10 per cent in the partnership that owns the property;
- A farmhouse occupied by a qualifying farm worker, a former long-serving farm worker or theirsurviving spouse or civil partner;
- A dwelling acquired by a financial institution in the course of lending; or
- Owned by a provider of social housing.
Exemptions from the tax are also available, for example to Charitable Companies.
Capital Gains Tax
The new CGT rules apply to post – 6th April 2013 disposals of property subject to the ATED.
The new CGT rules only apply to a portion of the gain or loss, which is calculated by dividing the number of days for which ATED was charged by the total period of ownership. This portion of any gain would be subject to CGT at 28%.
Any remaining gain or loss is then subject to the normal rules for chargeable gains, be it Corporation Tax or standard CGT, as determined by the status of the company.
If you would like any further information about the changes that have been introduced, please contact the partner at Hunters having responsibility for your legal matters, or (for new enquiries) James Vernor-Miles or Rachel Mainwaring-Taylor.
This article is based on the law in force as at 30th September 2013. Although we endeavour to ensure that the content is accurate and up to date as at that date, it is designed to provide general guidance only and is not intended to be comprehensive or to constitute professional advice. Specific advice should always be sought, and you should only rely on advice which is given, by reference to particular facts and circumstances.