UK based and offshore companies that own residential property in the UK could be liable to pay Annual Tax on Enveloped Dwellings (“ATED”) on 30 April 2018 due to new valuation requirements, warns Blick Rothenberg.
Paul Haywood-Schiefer, assistant manager at the firm, said, ‘There are only two weeks left for property companies to complete their ATED return for the 2018/19 year and pay any tax due by 30 April 2018. Failure to complete the return could result in penalties, even where there is no tax payment due.’
‘There has been a significant change for this ATED filing that may catch owners and directors of property companies unaware. Because of the revaluation mechanism, they now need to consider the value of properties at 1 April 2017 (rather than 2012) to determine which tax band is applicable for the next 5 years. There are going to be plenty of people who simply aren’t aware of the need to revalue the property.’
He added, ‘ATED applies to residential property valued at more than £500,000. With the revaluation, a property company that was not previously within the ATED regime could now be liable to file the returns and pay any tax due.’
‘There will be many situations where a company’s property has increased significantly in value, moving them into another tax band with an increased tax bill, and shareholders of these companies may have absolutely no idea!’
The period for an ATED return runs from 1 April to 31 March each year and returns have to be submitted by the 30 April in the year that the period relates to. For the ATED period 1 April 2018 to 31 March 2019 the return must be submitted by 30 April 2018 with the tax due by that date. The amount of tax a company will need to pay will be dependent on the valuation of the property at 1 April 2017.
The chargeable amounts for the period 1 April 2018 to 31 March 2019 are as follows:
- More than £500,000 up to £1 million - £3,600
- More than £1 million up to £2 million - £7,250
- More than £2 million up to £5 million - £24,250
- More than £5 million up to £10 million - £56,550
- More than £10 million up to £20 million - £113,400
- More than £20 million - £226,950
For example, a property that had a value of £1.9 million on 1 April 2012 and a value of 2.2 million on 1 April 2017. Using the old rules (2012 valuation), an ATED charge would be due of £7,250. However, as the 1 April 2017 valuation must be used, the charge would be £24,250, which is more than 330% of the previous year’s tax charge.
Rebecca Goldring, tax manager at Blick Rothenberg, advised, ‘It’s not all doom and gloom though as there are certain reliefs and exemptions from the ATED charge. For example, where the property is let to a third party on a commercial basis, where the property is being developed for resale by a property developer or where it is owned by a property trader as stock of their business for the sole purpose of resale.’
She added, ‘Owners and directors may be aware that they don't have to pay tax, but many will not know that they still have to file a UK ATED tax return to claim the relief. Failure to submit a return and to pay the tax charge by the due date will lead to penalties.’
The penalties range from a £100 late filing fine and interest on the underpayment to tax based penalties of up to 100% of the tax due.
For more information, please contact Paul Haywood-Schiefer
or Rebecca Goldring