In 2013 the government introduced ATED, an Annual Tax on Enveloped Dwellings. This tax applies to residential properties owned either partly or completely by a company, a partnership, or any other investment vehicle.
The term ‘Enveloped Dwelling’ refers to a residential property that is owned or ‘enveloped’ within a corporate wrapper.
Initially, the tax only applied to properties valued over £2,000,000. However, from the 1st April 2016 the government has extended the range of the tax to include properties valued at £500,000 and above. This means that nearly all properties or ‘dwellings’ in central London will fall into this tax bracket.
The government has deemed a dwelling to be a property that may be of mixed use or part of a residential property that includes surrounding grounds and gardens, and any outbuildings built within the boundaries of the grounds or gardens. If a property is only partly used as a residence, the ATED will only apply to the value of that part of the property. Where a property has been separated into self-contained flats, each flat will be considered as a separate dwelling and will be taxed on its value as a separate dwelling.
Are there any exemptions or reliefs for buy-to-let investors?
Yes. Among other exemptions and reliefs, property rental businesses or BTL landlords holding the property within a company can usually claim ATED relief if the property is let to a third party and not occupied by, or anyone connected to, the owner. However, a return is required for each property, and the exemption from ATED must be claimed.
How much tax is due?
Listed below are the figures for the 1st April 2017 to 31st March 2018:
The property value to be used is NOT its current value. The value as at 1st April 2012 (or purchase price, if purchased after that date) should be used for the five years from 1st April 2013. The property will then need to be revalued as at 1st April 2017 with that value used for the five returns and chargeable periods from 1st April 2018.
You can use a professional valuation or work out the value of the property yourself, but evidence should be kept. A return to HMRC must be submitted by 30th April of each relevant tax year, along with any payment due. (So unlike most taxes, this is a ‘payment in advance’ procedure).
For the year 1st April 2017 to 31st March 2018, the return needed to be submitted before 30th April 2017.
If relief is being sought a Relief Declaration Return must be submitted.
Are there Capital Gains Tax issues?
Yes. There is an ATED-related Capital Gains Tax to be paid when a property is sold. The amount of tax due depends on how long the property has been owned and how long ATED has been paid on the property.
This article has only covered the basics of the Annual Tax on Enveloped Dwellings, and we cannot claim to have covered all of the intricacies of the tax. It is important that people obtain an accurate valuation on their property to ensure they are paying the correct amount of ATED.
If you would like to have your property valued, or feel you need more advice on how ATED may affect your Central London property holdings, please contact us today.
