Annual Tax on enveloped dwellings (ATED) – are you ready?

Despite the announcement in the March 2012 Budget that an annual charge on high-value UK residential property would be introduced from 1 April 2013 under what was formally known as the Annual Residential Property Tax (ARPT), the fact that the first ATED return is due in less than one month (1 October 2013) is taking agents and corporate owners somewhat by surprise.

This is probably because we waited until 14 August for HMRC to publish their technical guidance on the ATED and the ‘final’ ATED return was made available on-line by HMRC only a couple of weeks before that (although tweaks were still being made to the help text as late as the end of August to assist preparers following feedback from advisers).

If all of the following criteria are met, an ATED return IS required by 1 October 2013:

1. A company (other than a company acting as trustee of a settlement or as nominee), a partnership with corporate partners[1] or a collective investment scheme which holds UK residential property, and

2. at least one single-dwelling interest[2] was worth more than £2m on 1 April 2012 or at the date of acquisition if later, and

3. the single-dwelling interest was still owned on 1 April 2013.

Certain reliefs are available that may reduce or negate the ATED annual charge but these must be claimed in the ATED return each year. A separate return must be prepared by the owner for properties qualifying for each different ATED relief and for each property where the ATED charge is due. Any ATED liability arising for 2013/14 must be paid by 31 October 2013.

If a new ATED-qualifying property is acquired, the owner has 30 days to notify HMRC – this is extended to 90 days for new-builds.

Future returns and ATED liabilities are due by 30 April (so the 2014/15 return must be submitted and any ATED liability paid by 30 April 2014). Adjustments required to already submitted returns may be made within 12 months of the end of the relevant chargeable period.

The ATED annual charges range from £15,000 to £140,000 per annum so it is essential that reliefs are claimed if they are due. These rates are due to increase in line with the CPI each year. It is expected that ATED will be included in the due diligence process for future purchasers of enveloped dwellings so it is important to ensure the returns and ATED payments are up to date.

The sale of an ATED-related property by a corporate owner after 5 April 2013 may cause some of the gain to be liable to capital gains tax. Payment will be due on 31 January following the end of the tax year in which the disposal occurred. The capital gains tax charge will replace the corporation tax charge on the ATED-related portion of the gain for UK resident corporate owners. This means that companies will have to calculate the corporation tax and capital gains tax due on a disposal of any property which has suffered the annual ATED charge at any time during its ownership.

[1] Where the corporate interest is valued at more than £500,000.

[2] A single-dwelling interest generally refers to a dwelling and its gardens/grounds but in certain cases can encompass other dwellings within the same grounds and linked dwellings.

If you would like to discuss ATED in more detail contact the Tax Advice Line by calling 0844 8922470 and quoting your Policy Code.