The first key deadline for the UK’s new Annual Tax on Enveloped Dwellings (ATED) return is less than two weeks away.
This week HMRC published a 15-page notice giving guidance on how to complete the first ATED return. Most corporate owners of UK residential property worth more than GBP2 million must submit the return, including companies as well as partnerships where one of the partners is a company or investment trust.
A separate return must be completed for each property by 1 October, and payment made by
31 October. In future years the returns must be made within 30 days of the date where the company first became liable to the ATED charge, or on 30 April, if it already owned the property at the start of the tax year; but special rules apply for this first chargeable period.
The annual charge for this tax year is based on the value as at 1 April 2012, rising from GBP15,000 for a property in the GBP2-5 million bracket to GBP140,000 for properties worth more than GBP20 million. If a property is not within the ATED charging regime for an entire year, only a proportion of the charge is due based on day-counting.
There are various exemptions, such as charitable companies, public bodies, property rental businesses, and historic houses open to the public. Farmhouses and dwellings conditionally exempted from inheritance tax are also exempted. So are corporates who hold the property as bare trustees, though if the property’s beneficial owner is also a corporate body then that owner must complete a return.
The ATED is only part of a radical new tax regime introduced this year by the UK government for residential property held through a corporate vehicle. Law firm Farrer & Co has published a detailed explanation of the new tax regime, including a checklist of factors to consider when deciding what to do about existing structures.
The regime includes three key measures, one being the ATED. The others are:
- From 21 March 2012, a higher 15 per cent rate of stamp duty land tax applies on residential properties acquired for more than GBP2 million by a non-natural person. Reliefs are similar to those allowed for ATED, though there is a claw-back of relief if the conditions for the relief are breached within three years of the effective date of the transaction.
- An extension of capital gains tax (CGT) to property disposals within the new regime. From
6 April 2013, CGT will be charged at 28 per cent sold by UK-resident as well as non-UK resident corporate owners. Taper relief is available, and the CGT charge applies only to increases in the value of property after 6 April 2013. Moreover, the new CGT charge does not apply to disposals of property held indirectly by a corporate envelope, so disposals of shareholdings in companies holding ATED-regime property are not caught.
‘Unless a relief applies, the acquisition of high-value residential property through a non-natural person is considerably less attractive following the introduction of the new regime,’ says Christine Payne Smith of Farrer & Co, who suggests that ownership structures should be reviewed carefully. ‘Direct ownership or ownership through a trust may be the best option, with separate measures to mitigate the inheritance tax exposure.’