Annual Tax on Enveloped Dwellings (ATED)

We have seen several instances in recent years whereby seemingly innocent situations and circumstances of farming and landed estate clients have become caught up in changes to tax rules aimed at others. One of the more recent but perhaps lesser known changes which may require consideration over the next few months relates to the curiously named ‘Annual Tax on Enveloped Dwellings’ (ATED), which could impact on any company owning higher value residential property.

Anti-enveloping tax charges were introduced in the Finance Acts of 2012 and 2013 and were aimed primarily at Stamp Duty Land Tax (SDLT) avoidance and non domiciliary property ownership structures, whereby property ownership was taken within the wrapper of a limited company. The intention was to discourage this enveloping technique by imposing and annual tax (ATED) combined with increased Capital Gains Tax and SDLT rates. The ATED charge may be relevant to farming and landowning clients holding residential property in a company and may require returns to be lodged to either pay the tax or claim relief, by 30 April 2016.

The ATED charge applies where a company, or a partnership with a company member (‘corporate partner’), owns a residential property over a certain value. The introductory rates in 2013-14 were set sufficiently high as not to trouble most farming and estate clients, except for those with a house valued at in excess of £2m, but these rates have steadily reduced and the de-minimus value for the current year of £500,000 will bring many far more modest residential properties into consideration.

The ATED tax charge is payable based on the value of the property, as follows:-

There are a number of exclusions and reliefs for property rental businesses, property developers or traders, properties open to the public, farmhouses and dwellings used by employees but it is important to note that reliefs require to be claimed.

The ATED runs in years commencing 1 April and returns and tax payments are required by 30 April at the beginning of each ATED return period. Returns and payments for the year 2016-17, commencing 1 April 2016, are therefore due by 30 April 2016. Until last year a full ATED return was required to claim reliefs due but fortunately it is now possible to make a shorter relief declaration return.

Farmers and landowners owning land through a limited company, or partnership with a company member, should consider whether this includes a residential property valued over £500,000, the potential tax charge and any reliefs applicable. Valuation information or advice may be required and HMRC also run a pre-return banding check facility. Returns for the year commencing on 1 April 2016 should be prepared and submitted to HMRC by 30 April 2016.

Should you require any assistance regarding ATED tax charges or HMRC returns, please contact mark.thompson@renniewelch.co.uk or michael.heath@renniewelch.co.uk or telephone (01573) 224391.