ATED – Impact on Limited Company Landlords?Make Text Bigger
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.
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?
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