18th March 2019
By Joanne Colwell, Partner
If you own a residential property via a limited company, and it’s empty or is being occupied by a connected person such as a member of your family, you may have to pay a tax on your investment by the end of April. It’s the Annual Tax on Enveloped Dwellings or ATED.
Investors are always looking for efficient ways of acquiring property, but there are usually pros and cons to consider in each scenario. Over the last few years, more people, particularly landlords, have chosen to buy residential properties through a limited company following changes to tax legislation which has restricted them from getting full mortgage interest relief.
ATED was introduced to target tax wealthy investors who were trying to avoid paying stamp duty by setting up a limited company to buy residential property. To begin with, only residential properties worth over £2 million were affected. But the threshold was lowered to £500,000 in 2016, which means many more will be caught in the net given the average value of UK homes these days.
The 2018/19 is the first year that ATED will be paid based on an updated valuation, which has been set at 1 April 2017. This value or, if the property is acquired after 1 April 2017, the value on acquisition will then be used to determine the amount of ATED that you’ll need to pay.
The following table shows the valuation banding and the corresponding amount of tax due. Of course, this is an annual tax not just a one-off!
In terms of timing, ATED is due on 30 April if the property was held on 1 April. The return can only be submitted during this time period – you can’t do it early!
Other key timings are, if the property was acquired after 1 April, the investor must pay ATED within 30 days of the purchase date.
If the property is a “new build” it must be paid within 90 days of the earliest of either its first occupation or when it first becomes a dwelling for Council Tax purposes.
In certain cases, investors may be able to claim reliefs using the Government Gateway and HMRC’s ATED Online Services. A property might get relief if, for example, it’s let to a third party on a commercial basis and isn’t at any time occupied by the owner or by anyone connected to the owner.
Unfortunately, many people who invest in residential property are unaware of ATED, whilst others are not sure what to do because it’s not always straightforward. The trouble is that if you don’t complete and send HMRC an ATED return or you do and it’s late, you’ll be charged a penalty and possibly interest. This is even if you’ve been able to claim reliefs and there is no tax to pay. Furthermore, if you own multiple dwellings a return for each of them may be due.
Our advice is speak to an adviser to establish if you fall into this regime or not. The lowering of the valuation bandings and rising values of residential property in general will mean that many people will have fallen into it without realising, and it’s better to be on the safe side than not.
Jo is a tax partner. She joined Wise & Co in 2002 and qualified as a chartered tax adviser in 2005. Her role has developed over the years and she combines a highly technical knowledge of taxation legislation with a practical and commercial approach to problem solving. She regularly advises on the tax aspects of business restructures, mergers and demergers, research and development claims, and the implementation of share option schemes.