ATED – Impact on Limited Company Landlords?

by Readers Question

14:22 PM, 30th November 2016
About 2 years ago

ATED – Impact on Limited Company Landlords?

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ATED – Impact on Limited Company Landlords?

Talking to my accountant this morning about buying properties to renovate and sell within a limited company he mentioned a thing called ATED – Annual Tax on Enclosed Dwellings.property tax

While it shouldn’t impact me immediately/directly (because what I’m looking to buy will be less than the threshold and I plan to sell rather than rent out) I can’t help thinking that this is another tax that should have more visibility within our community – particularly those who are now looking to rent out via a ltd co.

Interestingly, reading the government’s reasons for the introduction of this tax:

At Budget 2012 the Government announced a package of measures to counter arrangements to avoid tax by “enveloping” high value residential property in the UK.

It was aimed at non-domiciled people avoiding tax via convoluted buying/selling routines. The ‘high value’ started out as £2m plus which seems reasonable (the example it gives uses a £5m London property that is then sold for £8m!) but it has subsequently and quickly dropped to £500k which makes it less high value and more ‘mainstream’.

From my (admittedly) brief look at this issue the following thoughts/questions have arisen:

The threshold has now come down to properties worth in excess of £500 (down from £2m); what is to stop the government dropping that again to, say £200k, next year in order to bring in more tax?

There are some exemptions, one of which is if the property is ‘let to a third party on a commercial basis and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner’. Question – would an AST be classed as letting on a commercial basis?

If an AST is deemed to be commercial then newly formed landlord companies may not be out of the woods yet. There is also a tax when you come to sell. In another of the explanatory document it states:

• The rate of capital gains tax on chargeable gains that are ATED-related is 28%. [This is confusing as I naively thought that CGT only applied to individuals.]
• Gains and losses that are ATED-related are ring-fenced from non ATED-related gains and losses. [So, if you make losses elsewhere in relation to that property they cannot be offset against ATED?]
• Non ATED-related gains and losses are subject to the usual capital gains rules. [Ditto comment regarding CGT for ltd co]
• If a non ATED-related gain accrues to a company within the scope of corporation tax on chargeable gains it is subject to corporation tax in the same way as other chargeable gains. [Translation – you’re also going to pay corporation tax].
• If a non ATED-related gain accrues to a company that is resident outside the UK the gain may still be taxable: for example a gain may be attributed to a participator under TCGA92/S13 see CG57200+. [Translation – not even Mark Alexander is exempt!].

This is all in addition to the annual charge (minimum £3500 for the lowest band) that you will pay every year you own the property and aren’t exempt!

Has anyone with more knowledge/skill in understanding tax law than me taken a close look at this and the implications? Is it as bad as it sounds?

Paul



Comments

Neil Patterson

14:29 PM, 30th November 2016
About 2 years ago

I needed to clarify my understanding of ATED so below is from the .GOV site >> https://www.gov.uk/guidance/annual-tax-on-enveloped-dwellings-the-basics

Overview

ATED is an annual tax payable mainly by companies that own UK residential property valued at more than £500,000.

You’ll need to complete an ATED return if your property:
is a dwelling
is in the UK
was valued at more than:
£2 million on 1 April 2012, or at acquisition if later, for returns from 2013 to 2014 onwards
£1 million on 1 April 2012, or at acquisition if later, for returns from 2015 to 2016 onwards
£500,000 on 1 April 2012, or at acquisition if later, for returns from 2016 to 2017 onwards
is owned completely or partly by a:
company
partnership where one of the partners is a company
­collective investment scheme - for example a unit trust or an open ended investment vehicle

A new ATED band came into effect on 1 April 2016 for properties valued between £500,000 and £1 million. The normal filing and payment date for properties falling into this new band is 30 April 2016.

ATED returns must only be submitted on or after 1 April in any chargeable period.
There are reliefs and exemptions from the tax, which may mean you don’t have to pay.

Meaning of ‘dwelling’

Your property will be a dwelling if all or part of it is used, or could be used as a residence, for example a house or flat. It includes any gardens, grounds and buildings within them.

Some properties aren’t classed as dwellings. These include:
hotels
guest houses
boarding school accommodation
hospitals
student halls of residence
military accommodation
care homes
prisons

What you need to pay

The amount you’ll need to pay is worked out using a banding system based on the value of your property.
Chargeable amounts for 1 April 2016 to 31 March 2017
Property value Annual charge
More than £500,000 but not more than £1 million £3,500
More than £1 million but not more than £2 million £7,000
More than £2 million but not more than £5 million £23,350
More than £5 million but not more than £10 million £54,450
More than £10 million but not more than £20 million £109,050
More than £20 million £218,200

Bill O'Dell

9:52 AM, 1st December 2016
About 2 years ago

So how does a block of 5 flats that cumulatively is worth £1m, but individually worth £200k, fit into ATED I wonder?

Gromit

10:23 AM, 1st December 2016
About 2 years ago

Relief is given for a "qualifying residential property business" the HMRC technical guide gives a good definition of what constitutes such a business: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/375750/ated-tech-guide.pdf Section 31.3

What is not clear is exactly how much relief is you qualified that you'd be entitled to.

Gromit

10:29 AM, 1st December 2016
About 2 years ago

If large numbers of private LLs were to move properties into Ltd Co.'s and the Chancellor was to lose significant revenue as a result.

It would be very tempting for the Chancellor as an "anti-avoidance" measure, because of those 'greedy' LLs, to lower the ATED threshold, but that's pure speculation. This though would potentially hit the Tories build-to-rent pals (donors).

Steve Masters

11:07 AM, 1st December 2016
About 2 years ago

If you are above the ATED reporting threshold you will have to make an ATED return. However, so long as you qualify ie you or a close family member do not live in the property and you let it out on a commercial basis, then you can claim full relief by entering Relief Code "1". See Section 19 in the ATED Return guidence notes at https://www.gov.uk/government/publications/stld-annual-tax-on-enveloped-dwellings-ated/annual-tax-on-enveloped-dwellings-returns-guidance
"19 ATED relief code
19.1 The list of ATED relief codes are:
1. Property rental businesses – to include the special conditions for sale, demolition, and conversion"

Lets just hope the government don't reduce or remove the reliefs!!!

terry sullivan

12:29 PM, 1st December 2016
About 2 years ago

eu-insipred wealth tax?

Simon Lever

13:35 PM, 1st December 2016
About 2 years ago

Few points to note:

@Paul - CGT is not paid by companies, it is always corporation tax. Where companies make gains the computation is not the same as for individual CGT as companies can claim indexation allowance from the date of purchase and the tax rate is the CT rate.

For ATED gains there is a specific way of working out the gain and the corporation tax rate for the part of the gain which arises under the ATED rules is 28%. The part of the gain not considered as an ATED gain is then taxed at CT rates. You will not pay tax twice on the same gain.

Where a dwelling ("if all or part of it is used, or could be used as a residence, for example a house or flat. It includes any gardens, grounds and buildings within them.")(for buildings not classed as dwellings see Neil’s post above) is valued at more than £500,000 at 1 April 2012, or at acquisition if later, then an ATED return must be made for the 2016 tax year by 30 April 2016. In the return various exemptions can be claimed so that the amount due is reduced to nil.

Note – new valuation date for ATED to be 1 April 2017 and every 5 year anniversary thereafter.

However a return must be made and the exemptions claimed. If you have not made the return for 2016, due on 30 April 2016, then you are already late and will be subject to penalties for late filing.

@Bill - I would consider each of the flats to be a separate dwelling and therefore outside of the charge, but if this is your situation take separate advice. (no liability for this opinion assumed)

This is a complicated area of property ownership and if you own a dwelling with a value over £500,000 in a limited company you must seek advice as to how to proceed.

Paul Temple

15:29 PM, 1st December 2016
About 2 years ago

Reply to the comment left by "Simon Lever" at "01/12/2016 - 13:35":

Simon – I agree that CGT is not paid by a Ltd Co but part of the HMRC site (entitled ‘CGT on high value residential property’ opens with the comment

‘If you pay Annual Tax on Enveloped Dwellings (ATED) when you sell the property you'll need to pay Capital Gains Tax’

and then states:

You’ll need to pay Capital Gains Tax (CGT) called ATED-related Capital Gains Tax if you sell a residential property which is completely or partly owned by a:
• company
• company that is a partner in a partnership
• collective investment vehicle, for example a unit trust or an open-ended investment company.'

…hence my confusion!


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