TT226: Annual Tax On Enveloped Dwellings

If you:

  1. own a residential property in a company or a partnership with a corporate member and;
  2. the property is worth more than £500k;
  3. are planning on buying a residential property in the future

Read on!

As you may know, the Finance Act 2013 introduced detailed provisions to deter what was perceived as avoidance activity through the use of corporate structures to hold high value residential property. The measures involved the charging of a special tax known as the annual tax on enveloped dwellings (“ATED”) where high-value residential property is owned by a company, a partnership with a corporate member or a collective investment scheme.

The regime originally was targeted at single dwelling interests (that is a defined term in the legislation which effectively means a property for a single household) with a value in excess of £2m (as valued at 1 April 2012). However, the £2m threshold has been reduced for the 2015/16 year to £1m. On 1 April 2016 the threshold will be reduced again, this time to £500,000. This means that a high percentage of properties will now be, or soon will be, caught by ATED.

There is a number of reliefs available so that for normal business activity there is no charge to ATED. Nevertheless even when there is no charge, a return needs to be made so that the appropriate relief can be claimed. There are penalties levied where a return was due to be made (even if only to claim relief because no tax was due), but the return was not in fact made. A return claiming the relief is relatively simple but the deadline for its submission is tight being as follows:

Chargeable PeriodValueDue date for returnPayment date
1 April 2015 to 31 March 2016Ø  £2m30 April 201530 April 2015
1 April 2015 to 31 March 2016£1m to £2m1 October 201531 October 2015
1 April 2016 to 31 March 2017£500k30 April 201630 April 2016

If a single dwelling interest is purchased during the chargeable period 1 April 2015 to 31 March 2016 and its value is in excess of £1m then the ATED return and payment is due 30 days following completion date or 90 days following completion date if the dwelling is newly built. Again penalties are levied where a return was due to be made (even if only to claim relief because no tax was due), but the return was not in fact made.

Please note that this only applies to residential property. Commercial property is unaffected by these provisions.

If you think that you have been affected by the change in limits under the ATED rules or will be affected on future purchases please contact your Partner for further guidance.

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