Dispelling myths around Annual Tax on Enveloped Dwelling (ATED) rules.
Annual Tax on Enveloped Dwelling (ATED) rules have been around for more than five years but some still find them confusing for basic questions like:
why a return is required if there is no ATED to pay?
which events could trigger a new valuation date?
how to calculate capital gain on disposals or does the chargeable persons pay capital gain or corporation tax?
A brief on ATED rules
All the chargeable persons (which are non-natural persons) explained in section 3 of the ATED technical guidance must submit an ATED return for any property (single-dwelling interest) that’s within the scope of ATED for the relevant chargeable period.
An ATED chargeable period runs from 1 April to 31 March. Normally an ATED return must be made within 30 days of the date on which the property first comes within the charge to ATED for any chargeable period. Where the single-dwelling interest is held on the first day of the chargeable period, that is 1 April, the return must be filed by 30 April in the year of charge.
However, ‘new dwellings’ and ‘dwellings produced from other dwellings’ have been provided with a grace period ie 90-day filing the ATED return.
HMRC made it clear some time ago that all ATED returns will be filed online only from 1 April 2018 which was already highlighted in an ACCA article in January 2018.
As this year's ATED charge is based on the valuation of 1 April 2017, members are advised to pick up the correct banding for this new valuation for the related ATED charge payable. Companies may not have filed an ATED return to date because none of the dwellings they own were valued over £500,000 at the last valuation date but may wish to consider revaluing dwellings before the filing date for the next ATED year (30 April 2018) where the value of the dwelling at 1 April 2017 might cause the dwelling to enter the regime or a higher tax band.
Relief and exemptions
An ATED return should be submitted to HMRC annually whether tax is payable or relief is claimed. There are reliefs available which may reduce the liability in part or to zero. Generally 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
open to the public for at least 28 days a year
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
repossessed by a financial institution as a result of its business of lending money
acquired under a regulated Home Reversion Plan
being used by a trading business to provide living accommodation to certain qualifying employees
a farmhouse occupied by a farm worker or a former long-serving farm worker
Watch out for following situations that may lead to ATED charge:
Empty rental properties – HMRC enphasises that the chargeable person should take necessary steps without delay to find a tenant when property gets vacated. Reliefs are possible if a newly acquired property requires some refurbishment in order to bring it up to the standard required for letting, subject to requirements of the relief
Dwelling occupied by a non-qualifying person – Occupation by a non-qualifying person will preclude the rental relief applying and will also affect the availability of many of the other ATED reliefs. This is the case even if that occupier is paying a full market rent for the property.
A non-qualifying person is someone who is connected with the settlor, the trust or the company. ‘Connected’ would include settlor of the trust, his/her relatives and spouses/civil partners of those relatives. ‘Relative’ includes brothers, sisters, grandparents, children and grandchildren.
There are a number of exemptions from ATED for charitable companies, public bodies and bodies established for national purpose. They do not need to file an ATED if they meet all of the conditions mentioned in section 42 -44 of the ATED technical guidance.
Events that may trigger a new valuation date
An initial statutory valuation date set by HMRC was 1 April 2012 and each five years thereafter ie 1 April 2017 and 1 April 2022 onwards. The amount of tax due for each chargeable period depends on the value of the property owned on these dates. The following events happening in between statutory valuation dates may prompt a new valuation:
Sale of any substantial part of the dwelling If a company disposes of part of a property for more than £40,000 then this will also trigger a new valuation date. This may result in a lower valuation for ATED purposes, subject to the value of the rest of the dwelling not increasing much since previous valuation date. Otherwise the company could end up in a higher ATED charge if the value has increased.
A new acquisition which links to the existing property subject to ATED If a company acquires an interest which is more than £40,000 in relation to a property which is subject to ATED, it will trigger a new valuation date for that property. A new valuation would be required if, for a leasehold property, more than £40,000 is paid for a lease extension.
All ATEDs have to be filed online, but contact HM Revenue and Customs if you cannot access the online service or you need to file a return for a year before 1 April 2015.
To register for the ATED digital service follow this link.