Company residential property – is an ATED payable?

Companies, partnerships or collective investments schemes that own or part own UK residential properties valued at more than £500,000 are required by HMRC to pay an annual tax.  However, there are reliefs and exemptions that may mean you do not have to pay.

Helen Gale, Head of Tax, describes what annual tax on enveloped dwellings is and who it affects.  She also highlights some key areas to consider including important dates, rates and penalties that will be issued by HMRC for any late filings or late payments.

What is ATED & what does it affect?

ATED – annual tax on enveloped dwellings was first introduced in 2013 and sought to deter the ‘enveloping’ of high value residential property in corporate structures through anti-avoidance measures covering a new charge, increased capital gains tax and higher stamp duty.

Which properties are affected - Where expensive property, valued at £500,000 or more, is purchased by a non-natural person (broadly a company or partnership), there is a potential charge (see below). There are reliefs available including property which is let to a third party on a commercial basis, or a farmhouse occupied by a farm worker or former long-serving farm worker.  However, if a director or shareholder or someone connected thereto occupy the property a charge is highly likely to arise.  ATED applies to both UK and non-UK entities.

Important dates

Valuation dates - The valuation to be used depends on when the property was purchased.  If prior to 2012, originally it would have been on 1 April 2012 and this is updated every 5 years, the most recent one being 5 April 2022. 

Tax returns - Even if no tax liability is due, there may be a need to file a return to claim the exemptions available.  An ATED chargeable period runs from 1 April to 31 March, irrespective of the actual accounting year end, and returns must be submitted by 30 April (in year) or within 30 days of acquisition of an ATED relevant property.  Separate returns are required for each type of relief being claimed. The tax charge is paid at the same time.   Often, the penalties for failure to register are higher than the tax charge.

If reliefs are being claimed these need to be filed by the same dates on a Relief Declaration Return for each type of exemption but a single return for multiple properties within the same exemption can be used.  Valuations are not normally required in these situations.

Rates & penalties

Stamp duty and capital gains tax - Stamp duty on purchases of this nature is charged at the higher rate of 15% and any capital gains tax on disposal is charged at 28% as opposed to the normal capital gains tax rates for non-natural persons.  Please visit Gov.org for more information relating to capital gains tax.

The charges are as follows:

Penalties – HMRC will charge penalties for late filing, failure to pay on time and inaccuracies in an ATED return.  For late filing – there is an automatic late filing penalty of £100 and thereafter, tax geared penalties and daily penalties start to arise.  By way of example, if the return is late by 3 months or more the daily penalties will total £900 (maximum), plus the automatic late filing penalty, £100, plus 5% of the tax due. 

How can Haines Watts help?

We advise clients with a broad range of tax related matters across a number of sectors throughout Exeter and the South West, including property matters.

Generally, property prices increase over time and so it is likely that more and more properties will come within the charge. 

The impact of occupying company owned property for benefit in kind purposes is not covered in this article but if you have any questions please get in touch.

If you require any assistance with an ATED related matter, please get in touch with your usual Haines Watts contact or contact Helen Gale.