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Annual tax on enveloped dwellings – what you need to know.

ATED charges increased again in 2018 as those filing returns in April will know. The increase amounts to some 3% on prior year ATED charges.

With the regular annual increases since the tax was introduced in 2013 and more and more properties being caught by the charge due to the decreasing bands (luckily no lower than £500k ATED bands have been introduced), if, since 2013, a company has owned six properties, one in each of the ATED value brackets, the amount of ATED payable in 2019 will have increased from £260k for 2013-14 to £432k for 2018-19, unless reliefs were claimed.

 

2013-2014

2014-2015

2015-2016

2016-2017

2017-2018

2018-2019

More than £500,000 to £1m      

£3,500

£3,500

£3,600

More than £1m to £2m    

£7,000*

£7,000

£7,050

£7,250

More than £2m to £5m

£15,000

£15,400

£23,350

£23,350

£23,550

£24,250

More than £5m to £10m

£35,000

£35,900

£54,450

£54,450

£54,950

£56,550

More than £10m to £20m

£70,000

£71,850

£109,050

£109,050

£110,100

£113,400

More than £20m

£140,000

£143,750

£218,200

£218,200

£220,350

£226,950

Relief declaration submission by or ATED return and payment by Return due by 1 Oct 2013. Payment due by 30 Oct 2013   *30 April 2015 – for properties at more than £1m to £2m

 

For properties in bands other than £1-2m – 1 October 2015, payment due by 30 Oct 2015

    30 April 2018
Which value to report on return

Value at 1 April 2012

Value at 1 April 2012

Value at 1 April 2012

Value at 1 April 2012

Value at 1 April 2012

Value at 1 April 2017

To claim relief, ATED Relief Declaration Return (RDR) must be filed. If RDR is not filed, HMRC may open a discovery inspection and enforce ATED payment as relief was not claimed, even if the company may have qualified for it. Suddenly forgetting to file a return has become very costly.

Buy-to-let investors purchasing properties though limited companies to escape the restricted mortgage interest deductions affecting individual landlords may find themselves caught by a much higher ATED charge instead. Monitoring property values in the market place as well as any value added to property as part of refurbishments is necessary to ensure ATED is reported correctly.

When to value and how to report

Normal returns

ATED is an unusual return, as it requires companies to look ahead into a period which has not yet happened to see whether relief can be claimed, whilst property is shown at a valuation carried out in the past. In returns for 2013-14 to 2017-18, properties were shown at valuations obtained at 1 April 2012.

As valuations must be done every five years, starting from 1 April 2012 when a valuation was first required, the most recent valuation to be used in returns from 2018-19 is now a valuation carried out on 1 April 2017.

For chargeable period 2018/19 ATED return and tax payment or relief declaration return should have been submitted by 30 April 2018, if at the beginning of the chargeable period (1 April 2018) the company owned a property which was valued on 1 April 2017 (or based on cost if it was purchased after 1 April 2017) at any of the ATED brackets applicable to 2018-19. The company is expected to know at 1 April 2018 that it will or will not meet conditions for a relief from 1 April 2018 – 31 March 2019 or through part of the 12 month chargeable period for the relief to be apportioned.

A valuation also has to be done if a major part of the property held is sold or a property is acquired. For example, if a plot of land held from 2012 is sold in October 2015, the remaining land must be valued at the point of sale, in October 2015.

If property valuation comes within a 10% margin of an ATED band, for example directors value the property at £480k, which is within 10% of the first £500k (between £450k and £500k) HMRC may query the valuation. It is now possible to confirm the correct property value with HMRC by submitting a pre-return banding check (PRBC).

Following PRBC, HMRC may agree to the valuation, may ask for more information, or may advise the correct band. Considering the amounts of tax involved, it may be beneficial to carry out a professional valuation instead if a property comes within 10% of the value that could trigger or increase ATED charge, as HMRC has said that it accepts professional valuations.

 Adjusted returns

Complications arise when an investment company demolishes an old building before starting the construction of a new one, which is subsequently valued at more than the value of the building it replaced. ATED needs to be submitted for the chargeable period at the end of which no building exists following demolition, and subsequently an additional return needs to be submitted for the uplift in value between the old and the new building, in addition to normal ATED return for the next period.

Consider this scenario applying to an investor developing replacing an old building with a new development.

 Demolition and extension work Q&A

A few real-life examples may help clarify some ATED compliance requirements that property companies may face:

Q1. I am a developer operating via a limited company and currently constructing a new building. When does the new building need to be valued for ATED?

A1. The building needs to be valued when it first comes into existence for council tax or when it is first occupied, whichever is earlier.

Q2. I am a developer operating through a limited company and currently converting an old house to a house of multiple occupancy. Do I declare the value of the old house on ATED return or the value of the HMO after conversion and when is the ATED return due?

A2. For ATED purposes converting a house into HMO means that the old dwelling ceases to exist and a new dwelling comes into existence. The valuation is done when the new HMO comes into existence and the conversion is completed. A conversion is deemed to be completed when it is first occupied or when it becomes chargeable to council tax, whichever is earlier.  The return is due 90 days after that date. For example if a conversion is completed on 15 September, return must be submitted by 13 December.

Q3. A property company is changing a residential building within ATED to a non-residential building. Does ATED still apply?

A3. ATED applies until the time the use of the building changes. This is until planning permission is obtained (if required) and actual changes to the building made which make the building unsuitable for residential use as a dwelling.

Q4. A building within ATED charge suffered a fire and is unsuitable for occupation. Can I reclaim ATED paid?

A4. As fire is both accidental and beyond the control of the company, ATED does not apply from the moment when the building is expected to be unsuitable for occupation, if the period during which it is unsuitable is at least 90 consecutive days. You need to wait 90 days after the event which has made the property unsuitable for occupation before an amended return reclaiming ATED paid is made.

The next ATED return needs to be filed 30 days after the building becomes suitable for occupation again. This is when sufficient remedial work is completed to bring the building back to a state suitable for occupation, and not necessarily when all work is done to bring the building to its exact previous state.

Article from ACCA In Practice