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Residential Management Team
The Finance Act 2013 introduced an Annual Tax on Enveloped Dwellings (ATED). The tax was introduced as part of a number of measures to address perceived tax avoidance on the holding of residential properties through companies. Initially, when ATED was introduced, it applied only to dwellings with a Market Value in excess of £2 million, although this was subsequently reduced to £1 million with effect from the 1st April 2015 and is to be further reduced to £500,000 with effect from the 1st April 2016. Whilst there will be very few farm businesses which include dwellings worth more than £2 million, there will be a significant number of farm businesses which have a farmhouse with a value in excess of £500,000. ATED applies where a company, partnership, with at least one corporate partner, or collective investment scheme owns a dwelling with a Market Value in excess of £1 million, or £500,000 from the 1st April 2016, irrespective of whether the property is held either freehold or leasehold. In those instances where companies and individuals connected to the company own multiple interests in a dwelling these will be added together (aggregation) for ATED.
ATED applies to residential properties (dwellings) in the UK which may be all or part of a residential or mixed use property and includes properties capable of being a dwelling as well as the associated gardens/grounds and any buildings.
The value of dwellings are assessed on specific valuation dates, namely the 1st April 2012 and at 5 yearly periods thereafter, and the date of any substantial acquisition or disposals. In the event that ATED applies, it is necessary to submit a return to HMRC every year, which is usually within 30 days of the 1st April. The ATED charge is either paid or ATED relief is claimed. There are some exemptions from the tax including charitable companies using the dwelling for charitable purposes. If you don’t complete and send HMRC a return or payment it can result in a penalty and interest being payable.
The actual ATED charge payable depends on the specific value of the property with the annual charge for dwellings worth more than £500,000 but less than £1 million being £3,500 from the 1st April 2016. Chargeable amounts for the period 1 April 2015 to 31 March 2016 are as follows:-
|Property Value||Annual Chargeable amount 2015/2016 Tax Year|
|£1 million to £2 million||£7,000|
|£2 million to £5 million||£23,350|
|£5 million to £10 million||£54,450|
|£10 million to £20 million||£109,050|
|Over £20 million||£218,200|
ATED is an annual charge and consequently the availability of any reliefs depends on the use of the dwelling throughout the specific tax year, which runs from the 1st April to the 31st March. Potentially there are chargeable and relievable days depending on the specific circumstances.
From the perspective of agricultural and farming businesses there are a number of potential reliefs, including:
Where a company owns an historic house which opens to the public or provides access to the dwelling with the intention of being open for at least 28 days a year it may be possible to claim relief and reduce the ATED charge to nil although the company’s activities must be run on a commercial basis.
Farmhouse relief is available where a person carrying on a farming trade, or connected to someone carrying on such a trade, owns a farmhouse that forms part of an agricultural unit or land occupied for the purpose of carrying on that farming trade or business. The qualifying criteria includes farm workers, former long serving farm workers or their surviving spouse or civil partner.
Dwellings used for the purposes of a genuine property rental business, which is operated with a view to profit, can potentially give rise to relief from ATED. In such circumstances the tenant must be an unconnected third party, as occupation by a non-qualifying individual can prejudice the relief available.
Potentially, relief may be available if the relevant company or partnership holds the interest as part of a property development business.
ATED relief can apply where a trading company owns a dwelling which is used mainly as employee accommodation, albeit this does not apply if the employee has certain levels of ownership rights in the company.
Dwellings Open to the Public
Farmhouses used for B & B are potentially exempt from ATED, subject to the property being open to the public for a minimum of 100 days each year.
As the ATED threshold has been reduced to £500,000.00 it is imperative that those affected consult with their tax advisers/accountants as to whether their property is likely to be subject to ATED and, if necessary, the relevant valuation commissioned. Careful consideration should also be given to the exemptions and reliefs available and making the necessary legal arrangements in order to exploit the reliefs currently available.
Whilst ATED will no doubt help raise some additional revenues for a cash strapped Exchequer it will be an additional and unwelcome annual cost to a number of farming businesses.
GSC Grays are a regional firm of Chartered Surveyors and Land Agents operating across the North of England with a dedicated Valuation Department with extensive experience of undertaking valuations for taxation purposes.
[team-member name=”Ashley Dodgson”]