Buying Property via a Limited Company? Take Note of ATED

Buying Property via a Limited Company? The Annual Tax on Enveloped Dwellings (ATED) has been with us now for almost five years and yet it is still one of the least understood and more importantly, complied with taxes. So although the point of this blog is not to go over old ground, it’s probably a good idea to start with a little refresher - what is it exactly? ATED is a tax payable by any “non-natural person” – in practice this normally means a limited company – purchasing or owning residential property valued at more than £500,000 (as at 1 April 2012 or acquisition if later) unless any of the specified reliefs are available to the company.  In reality these reliefs are quite comprehensive and will exempt most property held for investment and development unless it is occupied by anyone “connected” to the owner. Which begs the obvious question - why is the level of compliance not always what it should be? I think the first problem is that ATED requires even those companies that are exempt from making a payment – which is the overwhelming majority of them – to submit a return claiming the exemption.  That is very easy to overlook particularly where taxpayers do not have advisers. The next issue with compliance is undoubtedly timing.  For properties owned on 1 April of each year, a return must be filed by 30 April in relation to the coming year (so for example, the deadline for filing the 2017/18 ATED return was 30 April 2017). What is often trickier, however, is when companies acquire or develop property within the ATED regime for the first time.  In those instances, a return or relief declaration needs to be submitted within 30 days of acquisition (the deadline for new-build properties is within 90 days of the date it is first occupied or first becomes a dwelling for council tax purposes). Given that many property lawyers do not advise on ATED even when they are filing the Stamp Duty Land Tax return, this is very easy to overlook even for advised taxpayers who, unaware of the obligation, simply do not inform their tax adviser that an acquisition has taken place in time to make the filing. The next problem seems to be a lack of awareness that a company may have fallen within the ATED thresholds when previously they had not.  There are two main ways in which this can and does happen. Firstly, because the threshold itself has been reduced twice since ATED was first introduced. Initially only properties valued more than £2million were affected, but in 2015 that became £1million and was finally reduced to £500,000 in 2016. There is also only limited awareness that, with effect from returns for 2018/19 (due for filing by 30 April 2018), the valuation date against which the £500,000 threshold should be considered becomes 1 April 2017 (ATED has provision for this to happen every 5 years).  So, a property previously below the threshold could suddenly be above it and require a return. Of course, the final issue is that valuation is by its very nature subjective. Who can really say, in the absence of a sale, that a property might be worth £500,000 or £475,000 for instance? In light of that, and the penalty regime detailed below, the best advice where relief is available has always been to file an ATED return if there is any doubt. So, what are the penalties for non-compliance?  Well they can be extremely harsh and recent case law has confirmed that ignorance of the obligation is irrelevant, even when the resulting penalty is disproportionately high (say because no ATED payment is actually due). Ignoring the additional penalties for non-payment where applicable, failure to file a return attracts a fixed £100 penalty. If you are 3 months late (which in the case of first time purchases during the year can be quite common), there is a daily penalty of £10 per day up to a maximum of 90 days/£900. 6 months and an additional £300 would be due, 12 months another £300.  As you can see they build up quite quickly! If you are buying property via a limited company, take advice, particularly if in doubt.  It is always good practice to speak to us before acquiring property to ensure the structure is properly in place to minimise risks, taxes and other liabilities and ATED is just another very good reason for doing so! If you are buying property via a limited company and wish to discuss your tax implications, contact me at barry.soraff@raffingers.co.uk.