Property held in companies – ATED tax

For reference purposes this is from HMRC:

What is ATED

Most residential properties (dwellings) are owned directly by individuals. But in some cases a dwelling may be owned by a company, a partnership with a corporate member or other collective investment vehicle. In these circumstances the dwelling is said to be 'enveloped' because the ownership sits within a corporate 'wrapper' or 'envelope'.

ATED is a tax payable by companies on high value residential property (a dwelling). It came into effect from 1 April 2013 and is payable each year.

You'll need to complete an ATED Tax Return for your property if all of the following apply:

it's a dwelling (see below for definition)
it's situated in the UK
it was valued at more than £2 million on 1 April 2012, or at acquisition if later
it's owned, completely or partly, by a company, a partnership where one of the partners is a company, or a 'collective investment vehicle' - for example, a unit trust or an open ended investment company

There are reliefs that could reduce the tax completely but you can only claim them if you complete and send in a return.

There are also a number of exemptions from the tax, most significantly, charitable companies using the dwelling for charitable purposes, which mean you may not have to file a return.

The amount of ATED is worked out using a banding system based on the value of your property. You need to find out which band the value of your property falls into.

Annual chargeable amounts

The annual chargeable amounts for ATED are increased each year in line with the Consumer Prices Index (CPI). You must ensure that you calculate your liability based on the correct charges before filing your return as they are subject to change.

Budget 2014 announced a reduction in the threshold from £2 million to £500,000 to be introduced over 2 years. From 1 April 2015 a new band will come into effect for properties with a value greater than £1 million but not more than £2 million with an annual charge of £7,000. For those persons who fall into this new threshold there will be a transitional rule where returns will be due by 1 October 2015 and payment by 31 October 2015. From 1 April 2016 a further new band will come into effect for properties with a value greater than £500,000 but not more than £1 million with an annual charge of £3,500. For future years these charges will be indexed in line with the previous September CPI. These pages will be updated in advance of these chargeable periods to take account of this change.

Thanks for the overview Neil.

Can you please clarify whether ATED applies to properties which are tenanted by private (residential) tenants? Or does ATED only apply to vacant dwellings?

Many thanks,

Andrew

I believe it applies to both if its held in a limited company or by a partnership owned within any limited company.

HMRC clawed over 100m from this last year

That surely can't be the case? An annual charge of £3,500 on a £500,001 property would represent a huge proportion of annual rental profit - which will also be taxed at 20%. ??

Hi Andrew,

That is straight from the HMRC website.

I will ask Pacific if they can comment for us 🙂

Thanks Neil. Much appreciated.

The ATED applies to residential properties that are physically located in the UK. Unfortunately this catches buy to let residential properties held by companies and partnerships with a corporate partner.

HMRC are set to make billions from this tax

My understanding is that ATED is intended to tax people who live in property owned by a company as a tax shelter.
Genuine Landlords who let to unrelated others in property over the ATED threshold can apply for an exemption BUT this means yet more paperwork each and every year!

Accourding to:- http://www.hmrc.gov.uk/ated/basics.htm#9

"A dwelling might get relief from ATED if it 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

open to the public for at least 28 days per annum, if part of a property is occupied as a dwelling in connection with running the property as a commercial business open to the public, the whole property is treated as one dwelling and any relief will apply to the whole property

part of a property trading business and isn't, at any time, occupied (or available for occupation) by anyone connected with the owner

part of a property developers trade where the dwelling is acquired as part of a property development business the property was purchased with the intention to re-develop and sell it on and isn't, at any time, occupied (or available for occupation) by anyone connected with the owner

for the use of employees of the company, for the company's commercial business and where the employee does not have an interest (directly or indirectly) in the company of more than 10%, the employee's duties must not include services for any present or future occupation of the property by someone connected with the company, the relief is also available where a partner in a partnership does not have an interest of more than 10% in the partnership

a farmhouse, if it is occupied by a qualifying farm worker who farms the associated farmland, a former long-serving farm worker or their surviving spouse or civil partner

a dwelling acquired by a financial institution in the course of lending
owned by a provider of social housing"