Tom Adcock talks us through the exemptions and recent examples of clients CBW has helped reclaim some, or all, of their ATED charges.
Very simply put, Annual Tax on Enveloped Dwellings (ATED) is a tax targeted at companies (or other bodies corporate) that own UK residential property for occupation by the owner of the company or a relative. It applies to companies resident in the UK as well as outside, and has been around since April 2013. Initially, it only affected companies that owned residential property situated in the UK, worth in excess of £2million. However, that threshold has since been reduced to just £500k bringing many more companies potentially within the scope of charge.
Sadly, we have seen a number of occasions where the tax has been paid when it should not have been. This is usually because the company does not know that they qualify for one of the reliefs from the tax.
You may be able to claim relief for your property if it is:
- let to a third party on a commercial basis and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner
- being developed for resale by a property developer
- owned by a property trader as the stock of the business for the sole purpose of resale
- open to the public for at least 28 days a year
- repossessed by a financial institution which has lent money on it
- acquired under a regulated Home Reversion Plan
- being used by a trading business to provide living accommodation to certain qualifying employees
- owned by a farming business and occupied by a farm worker or a former long-serving farm worker
- owned by a registered provider of social housing
The most common are of course the first three. Importantly, where one of the exemptions applies a company must still file an annual ATED return to claim the benefit of the exemption.
Unfortunately, it would seem that some companies have misunderstood the rules and as a result either paid too much tax or paid tax when they should not have done.
For example, we recently worked with a client who had owned a property through a company for a long time which they used when the family came to the UK. When ATED came in, they valued the property at £1million. They were not caught straight away but were advised (not by us) that they fell within ATED from April 2015 and have submitted ATED returns and paid the charge since then, based on the property being within the £1million to £2million bracket. However, the thresholds are written in such a way that for the property to be within the £1million to £2million bracket it will have needed to be valued at more than £1million. It was not; it was valued at exactly £1million. We submitted a claim to have the tax repaid to the company, along with evidence of its value, which HMRC accepted and repaid our client around £10,000.
We have also helped a client where the company had been paying ATED as it owned a residential property because it did not know that because it was let out to an unconnected third party it qualified for 100% relief. Again, we wrote to HMRC and recovered all of the ATED that the company had paid.
Finally, sometimes transactions go awry and what you recollect having happened may not reflect the actual transaction. A client believed he had transferred a property that he owned into a company prior to ATED coming in. Following the introduction of ATED, the company began paying the ATED charge. When we investigated it became apparent that, because of a legal mix up, whilst the legal title had been transferred to the company, the beneficial ownership had not. I will not bore you with the distinction but for ATED purposes it is the beneficial ownership that matters. The company had been paying ATED needlessly as it did not own the property for the purposes of the ATED legislation. We wrote to HMRC and recovered all of the ATED that the company had paid; in excess of £1million!
We are experts in handling clients’ UK tax affairs and know all too well that the devil is very much in the detail. It is always important to fully understand exactly what has happened before