Could rising property prices also give rise to an additional company tax charge?

Lovewell Blake

In 2020, the pandemic sparked a ‘race for space’ which saw the average UK house price rise by 7.6% in the year to November 2020. This means that a dwelling previously valued at £465,000 12 months ago could now potentially be worth over £500,000 and give rise to a tax issue under Annual Tax on Enveloped Dwellings (ATED).

What is ATED?

ATED is an annual tax charge on companies (as well as partnerships with a corporate member and Limited Liability Partnerships) which owns residential property in the UK valued at more than £500,000. The annual charge is calculated on a sliding scale, with property between £500,000 and £1m incurring a £3,700 liability which increases all the way to £237,400 for property valued at more than £20m.

There are various reliefs in place which reduce the liability to £nil, including if the property is part of a property rental, trading or development business, or if it is a working farmhouse (assuming the relevant conditions are met). However, these can only be obtained by submitting the relevant claim for relief so even if you think a relief may apply and no charge would be due, a return may still be needed.

At what date do properties need to be valued?

If a company acquired the residential property since 1 April 2017, the value will be taken at the date of acquisition. If the property was held on or before 1 April 2017, then this date will be used for valuation purposes.

“So how do rising property prices increase a company’s exposure to ATED on historically owned property?” you might ask.

The property value review window is every 5 years, and so on 1 April 2022 any residential property, regardless of when it was acquired, will need to be revalued for ATED. The UK’s 5 year average house price increase is around 17%, meaning a property acquired before 2017 currently valued at £427,500 for ATED purposes could potentially be valued at over £500,000 by next April.

When do HMRC need to be notified?

Where an ATED charge applies, a return for each property will need to be filed by 30 April each year with the corresponding tax charge payable by the same date. If a property is acquired at any time during the year for which an ATED charge applies, then a return will need to be filed within 30 days of the acquisition date.

The same deadlines will apply when notifying HM Revenue & Customs that a relief will apply and these will also need to be filed annually. Property developers may have a little longer but should seek advice if they are not already within the ATED regime.

Who can advise me if my company potentially has an issue?

Having only been introduced with effect from 1 April 2013, ATED is a relatively new tax and one which many companies could be unfamiliar with. If you have any concerns about how it could apply to your business then your usual Lovewell Blake contact will be able to review the position for you.

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