The Annual Tax on Enveloped Dwellings (ATED) – which ranges from £3,500 a year to over £200,000 – is payable on residential properties owned and let by companies, and which are worth £500,000 or more.
The tax affects many farming businesses, and although most farm properties are likely to qualify for exemption, this has to be secured each year. In addition, a change to the valuation date means more houses than ever before will fall under the ATED rules.
“Though April 2017 returns will be based on the value of properties on 1 April 2012 – or the date of acquisition if it was purchased after that date – returns from 2018 to 2023 will be based on the value as of 1 April 2017,” says tax consultant Victoria Paley. “Now may therefore be a sensible time to get relevant properties valued.”
Where values have increased since 2012, properties which have not previously been caught by ATED may now have breached the £500,000 threshold, says Miss Paley. “Where properties have been occupied for several years, owners may not be aware of the current value, and getting hit by a tax charge could be very expensive.”
Although property owners can use their own estimated valuation, Miss Paley highlights the risks of this. “HMRC can enquire into ATED returns and if they consider a property is undervalued they could seek to charge additional tax alongside interest and penalties, so we strongly recommend the getting a professional valuation.”
In cases where properties have been valued close to the ATED threshold and there are no reliefs available to eliminate tax charges, it is possible to ask HMRC for a Pre-Return Banding Check. “This provides the opportunity to agree the values with HMRC before submitting the return – which should ensure the correct amount of tax is paid,” she adds.
Fortunately, there are several reliefs available, but it is important to submit an ATED return every year. “There is a relief specifically for farmhouses, but the strict conditions imposed mean it should not be taken as granted,” says Miss Paley. “Letting relief can also be available for properties including those occupied by employees; however, this may not be available where properties are let out to a family member,” she adds.
“Where relief is not available, farmers may consider restructuring the business to remove the company’s interest in the properties, but this can have significant implications for capital gains and inheritance tax, so be sure to take professional advice.”
- For more information contact Victoria Paley on 01935 709431.