ATED is a tax that is aimed at discouraging individuals from holding their own properties through companies (or similar offshore entities). This brief is intended to outline the main features of ATED only. There are a large number of detailed rules which modify or override this guidance. Accordingly decisions should not be made on the basis of this guidance. It is important to take advice or consult the legislation in relation to the application of ATED to an individual property. This is of course something on which CBW is happy to advise.
What is ATED?
As the name implies, ATED is an annual tax payable in relation to properties held (enveloped) in the wrapper of a company (or an equivalent overseas entity). The tax is payable only on residential property valued at over £500,000 at the last valuation date.
When does ATED apply?
In simple terms, ATED only applies where the shareholder (or similar) or someone connected with that person has use of the residential property held within the company.
The tax was introduced from 1 April 2013 and initially applied only to properties valued at over £2 million, but this was reduced to £1 million from 1 April 2015 and to £500,000 from 1 April 2016. The last general valuation date was 1 April 2012. Accordingly a property held at that date is within ATED for the year to 31 March 2017 only if it was worth over £500,000 at 1 April 2012.
The next general valuation date is 1 April 2017. The values at that date will be used for 2018/19 onwards (not 2017/18). If a property was not held at 1 April 2012 the valuation date is the date of acquisition (ie the value is the actual cost). Where a property is substantially altered (more than £40,000 is spent on it or part is disposed of for more than £40,000) the date of the alteration is also a valuation date.
How much is the tax?
The rates that apply for 2016/17 are as follows:
Value of property
£500,000 to £1 million £3,500
£1 million to £2 million £7,000
£2 million to £5 million £23,350
£5 million to £10 million £54,450
£10 million to £20 million £109,050
Over £20 million £218,200
The tax is payable annually in advance. The tax payable for 2016/17 was due on 30 April 2016 (or 30 days after the acquisition or alteration date for a new or substantially altered property). The tax accrues on a daily basis. If the property is bought during the course of a tax year only a pro-rata part of the annual charge is payable. If it is sold during the year (or starts to be used for a non-taxable purpose) the amount paid for the balance of the year can be reclaimed from HMRC.
What type of property falls within ATED?
The tax is charged on a chargeable interest in a single dwelling. Accordingly where a property consists of, or contains, two or more dwellings each must normally be looked at separately to determine whether the tax applies and, if so, the amount payable. (This does not necessarily apply if each does not have its own separate entrance accessible from a public road). A chargeable interest is the freehold or a lease or any other estate in or over the land. A licence to occupy, a tenancy at will and a mortgage are not chargeable interests though. A building is a dwelling if it is either used as, or is suitable for use as, a dwelling. The following are not used as dwellings and are accordingly normally outside the scope of ATED:
- a) residential accommodation for schoolchildren
- b) residential accommodation for students
- c) residential accommodation for members of the armed forces
- d) an institution that is the sole or main residence of at least 90% of its residents
- e) a home or other institution providing residential accommodation for children
- f) a home or other institution providing residential accommodation with personal care for those in need of such care, e.g. a nursing home
- g) a hospital or hospice
- h) a hotel, inn or similar establishment.
It is likely that the first three of these exemptions are limited to purpose built accommodation blocks. If a house is simply let to, say, students it is likely to be regarded as a dwelling on the basis that it is suitable to be used as a dwelling by other people. If another interest in a property is held by a connected person the interests have to be aggregated and the company is treated as owning that aggregated interest. This does not apply to a reversionary interest provided that its value is less than £250,000 (£500,000 if the property is worth more than £2 million). There are a number of reliefs – effectively exemptions – namely property used for:
- a property rental business (but not if let to a shareholder or person connected with a shareholder)
- dwellings open to the public
- property development
- property dealing stock
- financial institutions acquiring property in the course of lending
- property occupied by an employee or partner owning under 10% of the employer’s business and occupied for the purpose of the employer’s trade
- social housing held by a registered social housing provider
- a caretaker’s flat where the flat management company is owned by two or more of the occupiers of the flats and the caretaker’s flat is in the same block as theirs.
These reliefs must be claimed in an ATED return. This means that a return may need to be submitted even if there is no taxable property. Where two or more properties fall into a single one of the above reliefs a single “relief declaration return” can be submitted instead of individual returns. This simply declares that the company is claiming exemption for more than one property to which the particular relief applies.