With 31st January long since passed most tax payers thought they were home and dry. However, this is not the case for the growing numbers of taxpayers who have purchased residential properties via a limited company. As a result of ATED your deadline is fast approaching.
ATED is not associated with any youth culture of yesteryear. ATED is the acronym for ‘Annual Tax on Enveloped Dwellings’ (ATED) a tax charged on ‘non-natural persons’ (a company, a partnership with a company member, or a collective investment scheme) which hold an interest in one or more UK residential properties and where that single property is worth more than £500,000 (since 1st April 2016). ATED came into effect on 1st April 2013 as an anti -avoidance scheme against individuals who acquired high value UK residential properties through non- natural persons. The property is said to be “enveloped” because it sits within a corporate “wrapper” or “envelope”.
ATED is charged in set property value bands for ‘chargeable periods’ from 1st April – 31 March. The payment of the ATED annual charge is due and payable by 30th April. This leaves all non-natural persons with a 2017-18 ATED tax liability less than 30 days to prepare their ATED return and make payment to HMRC. Interestingly, the penalties for failing to make ATED returns or for making incorrect ATED returns are the same as for personal income tax returns. The 2017-18 ATED tax charges are set out in Table 1.
Although ATED is based upon property value bandings, it is necessary to emphasise that the ATED is not a replacement for the local Council Tax. The ATED is an additional and separate tax charge not associated with any local Council Tax. Moreover, the property values do not remain fixed at the 2012 valuations as properties are required to be re-valued every five years for ATED compliance.
A separate ATED return must be submitted to HMRC for each property that falls within the ATED regime. There are several allowable reliefs from ATED. However these must be claimed on an ATED relief declaration form and submitted to HMRC at the same time as the ATED return, on or before 30th April.
Each ATED relief has been assigned a separate form by HMRC. Therefore a separate relief form must be completed and submitted for each relief being claimed. However, where one particular relief is being claimed for more than one property then these may be submitted on the same relief declaration form.
HMRC property valuation bands are based upon the market value as 1st April 2012. However, any property acquired since 1st April 2012, requires the application of the open market value as at the date of acquisition. In addition, where a property owner believes their property falls within a 10% tolerance zone of their band, they can apply to HMRC for a pre-return banding check. However, as the time scale for processing these is a minimum of 30 days, this may not be a viable option for those with 2017-18 ATED liabilities.
Non-natural persons who have breathed a sigh of relief thinking they’ve been saved by the bell as their purchase has yet to be completed, should read on. Where a property is acquired after the 1st April, an ATED return and payment date will be due 30 days from the purchase date. The liability will be based upon an apportionment of the annual charge. However, purchasers of a new build are granted 90 days from purchase date to submit their ATED return and make payment.
The increasing trend in non-natural persons purchasing buy-to-let property portfolios may reduce personal income tax liabilities. However the personal tax tail should not wag the dog.