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ATED for property developers

This regime applies an annual tax charge to all companies that own residential property; increased stamp duty charges on acquisition and capital gains tax charges on sale may also apply. The tax charge is a flat rate amount based on the property value. For 2017-18, properties valued between £500,000 and £1,000,000 will pay a tax charge of £3,500. There are however numerous reliefs, the two most common listed below.

Property developers

Relief is available where there is a property development trade, with the intention of developing and re-selling as part of that trade. Broadly, this means the property should be sitting in stock/WIP of the company.

Property development can be any or all of the following:

  • Substantial refurbishment of the whole property before resale;
  • Extensive works on property, i.e. extensions;
  • Demolition of property and replacement with one or more new residential units;
  • Sale of land - interests out of land acquired.

Trade must be carried out on a commercial basis, and with a view to profit.

If a developer rents the property out due to difficulty in selling, relief is still available as the intention is still to sell. However, if the decision is to retain the property for a long-term rental business, relief should be claimed under the property rental business heading.

Property rental business

Relief is available where a dwelling forms part of a qualifying property business.

Qualifying rental business must satisfy two conditions:

  1. Must be carried out on a commercial basis and with a view to profit; AND
  2. Must be a property rental business as defined in legislation (essentially receiving rents from land & property).

Indicators that the business is not commercial include:

  • Property is never marketed to public through an independent agent;
  • Property is not managed by an independent agent;
  • Property is not let on standard 3rd party terms (i.e. not commercial rent);
  • Landlord does not enforce legal rights;
  • Long or repeated periods of non-occupation;
  • Business funded by debt at level/terms a 3rd party bank would not offer.

If no rent is being generated, relief can still be claimed where steps are being taken to rent the property out and rents are generated without undue delay.

Non-qualifying occupation – beware!

If a non-qualifying individual is in occupation of the property no relief can be claimed from the ATED charge. Plus, any year they take occupation can also mean relief is not available for the next three years and prior year’s relief may be withdrawn!

Non-qualifying individual = anyone controlling the company that owns the property, and anyone related to that shareholder i.e. husband/wife/brother/sister or lineal ancestor/descendant.

It’s important to note:

  • Any relief must be claimed, it is not automatic.
  • Penalties for late filing of the ATED return; normal filing deadline is 30 April for the coming tax year i.e. return for the 2016-17 year was due by 30 April 2016.
  • If a company acquires a property which is subject to ATED after 1 April in a given year, the company must file the ATED return for that year and pay any ATED charge within 30 days of such acquisition (or 90 days if the property was newly built).
  • Where an ATED return has been filed and relief claimed, any subsequent property purchases or developments in the same tax year do not need to be reported if they fall within the same relief.

Wise & Co can advise on all property tax issues and the reliefs available for developers, landlords and rental businesses.

Download the PDF version Tax facts – ATED for Property Developers

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