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Corporate ownership of “expensive” dwellings

Special rules known as ATED (Annual Tax on Enveloped Dwellings) apply where an interest in a dwelling (typically a house or flat, whether freehold or leasehold) situated in the UK is owned or acquired by a company; by a partnership or LLP with at least one corporate member; or by a collective investment scheme.

Special rules known as ATED (Annual Tax on Enveloped Dwellings) apply where an interest in a dwelling (typically a house or flat, whether freehold or leasehold) situated in the UK is owned or acquired by a company; by a partnership or LLP with at least one corporate member; or by a collective investment scheme.

The ATED rules normally only apply where a dwelling owned by a company is lived in or available for occupation by one or more shareholder of the company or persons connected with them.  There are exemptions where the property is used in a genuine property business.  However the exemption has to be claimed on a year by year basis – see further below.

The ATED rules are intended to discourage ownership of “expensive dwellings” owned by companies and used as homes by the company’s owner(s).  The rules impose:

For simplicity, this page refers throughout to “company”. Although described as applying to “expensive” properties, some of these rules can apply to properties worth as little as £500,000.  We refer below to a property within the ATED rules and not exempt as an “ATED dwelling”.

It does not matter whether the company owning it is resident in the UK or not, but commercial properties are not within the scope of the special rules. Nor are properties situated outside the UK. Nor do the new rules apply to trusts, even if the trustee of the trust is a company.

There is  exemption from ATED where the company carries on a genuine property business – covering (inter alia) property developers, investors and dealers.

There are conditions to qualify for relief, the most notable being that no-one connected with the company lives in the property. This relief is not automatic: it needs to be recorded and claimed by submitting an annual ATED exemption return.  In the case of SDLT exemption from the ATED 15% rate has to be claimed on the normal SDLT return.

ATED rates

An annual charge has applied from 1 April 2013 to each “expensive dwelling” owned by a company, initially to properties worth more than £2m.

The rate of tax depends on the property value at the relevant valuation date. From 1 April 2015 the charge was extended to properties worth between £1m and £2m and from 1 April 2016 the charge was further extended to properties worth between £500,000 and £1m.

The table below shows the rates from for 2018/19.

The “property value” for this purpose was initially the value of the property as at 1 April 2012 or, if later, the date the property first enters the ATED regime. Properties are then revalued every 5 years and values for returns for 2018/19 on are based on the value at 1 April 2017.

Property Value

 

£500,000-£1m  £1m-£2m  £2m-£5m £5m-£10m £10m-£20m  >£20m
Annual charge 2018-19 £3,600 £7,250 £24,250 £56,550 £113,400 £226,950

Statutory reliefs from the ATED charge are not automatic, and must be claimed. A single return claiming exemption on a number of properties can be made, but must be made by an electronic return using HMRC’s Government Gateway.

The ATED return

  • The return year runs to 31 March, and returns must be submitted and tax paid by 30 April at the start (yes, we do mean the start!) of the year.
  • A separate return is needed for each property (with separate bands) liable to ATED. Thus a company with three “expensive dwellings” each worth £2.5m would have three annual charges of £15,400 each (not a single charge of £35,900 on the aggregate value of £7.5m).
  • Where a dwelling comes into charge during a year, a return must be made to pay the charge, usually within 30 days of acquisition.
  • An ATED return needs to be submitted by every taxpayer who owns UK residential property. If all properties owned by the taxpayer are exempt from the charge – for example because all are commercially let out – a single annual exemption return can be filled out in respect of all properties owned. A return would still be required if any property did give rise to an ATED charge.

Other

There are special rules for properties entering and leaving the ATED regime and multiple dwellings.

Capital Gains Tax (CGT)

Up until April 2019 where a company sold a property in respect of which it has at any time been liable to the ATED charge, the ATED part of the  gain was subject to UK Capital Gains Tax at 28%. The ATED-related CGT charge applied only to the increase in the property’s  value between 6 April 2013 (or the date on which the property first comes within the ATED regime) and the date of disposal.

The ATED related CGT charge has been abolished for disposals on or after 6 April 2019 and for corporation tax for accounting periods beginning on or after 6 April 2019.  Gains on sale of ATED dwellings and now subject to the normal CGT rules for UK or non-UK residents.

 

For more information or help from one of our property tax specialists, please contact us using our enquiry form.