Alert for all companies holding residential property: Are you aware of the ‘enveloped dwellings’ tax regime?
UK residential property classed as an ‘enveloped dwelling’ and valued at over £500,000 will be liable for an annual tax charge from 1 April 2016. Those affected must file their returns and pay the tax due for the 2016/17 charge period by 30 April 2016, so if your property qualifies, there is no time to waste.
‘Enveloped dwellings’ are UK residential properties owned wholly or partially by a company, a partnership with a corporate member or other collective investment vehicle. In 2013, such properties became liable for tax under The Annual Tax on Enveloped Dwellings (ATED) regime if they met certain criteria.
For a property to qualify for ATED it must be physically located in the UK and include all or part of a residential or mixed-use property being used as a ‘dwelling’ or ‘capable of being a dwelling’. A property may contain multiple dwellings – a block of flats is an obvious example.
When it first came in, ATED applied to UK residential property with a value in excess of £2m. It was extended to apply to properties worth over £1m on 1 April 2015 and those worth more than £500,000 will fall under the regime from 1 April 2016.
The ‘dwelling’ may include more than the actual building (such as gardens and outbuildings).
Exclusions, exemptions and reliefs
Even if your property meets all of the above criteria, you may not have to pay all or some of the tax charge. Certain types of living accommodation are specifically excluded from the definition of a dwelling and dwellings used for certain public interest purposes can receive an exemption. e.g. Care homes, Hotels and Guest Houses)
Where properties are not exempt, reliefs may be available which can reduce or extinguish the liability. Reliefs are generally available for trading activities with residential properties, such as third party commercial letting, or property development. However, it is important to note these reliefs are not automatic and you still need to do an annual return to claim the relief.
A valuation is used to determine if an enveloped dwelling falls within the ATED regime as well as the amount of tax payable annually. Currently, this is taken as the value of the property at 1 April 2012 or the date it was purchased, if later.
All properties within ATED will need to be revalued on 1 April 2017. At least one professional valuation per dwelling will be required to satisfy HMRC.
Returns and charges
As ATED is an annual tax, there are annual filing requirements. The filing and payment date is 30 April in advance in the relevant chargeable period. For example, by 30 April 2016 for the 2016/17 tax year. Penalties and interest apply where payment and/or filing dates are missed.
How we can help
If you need help assessing whether your dwelling is subject to ATED, preparing and submitting returns or you would like advice on tax efficient holding structures for UK properties, please contact Anne-Maree Dunn