Tax Alert – Companies owning residential properties

Back in April 2013 HMRC introduced a new tax on companies holding ‘high value’ residential property or dwellings.  At that time the tax only applied to any single dwelling with a value in excess of £2million.  However in budget 2014, changes were announced which extend the tax charge to residential properties valued in excess of £1million with effect from 1 April 2015 and in excess of £500 thousand with effect from 1 April 2016.

The Annual Tax on Enveloped Dwellings (“ATED”) was introduced to counter what HMRC saw as ‘arrangements to avoid tax’. However, as there is no motive test in the legislation, it can apply to any company owning a dwelling with a value that falls within the published bandings. There are a range of exemptions built into the legislation.  Unfortunately these exemptions are not automatic and can only be claimed by completing an annual return.

If your company owns a dwelling that is valued in excess of £500K, even if it is a working farmhouse, part of portfolio of residential letting property, or a property that you have developed for sale, then you will fall within the scope of the rules from April 2016 (or earlier for higher value property) and will need to make a return in order to claim exemption from the charge.  If any dwelling held by the company is occupied or available for occupation by anyone connected with the owner, then the company may be liable to pay the annual tax.  There are penalties for both late filing of an annual return and late payment of the charge.

In addition to the annual charge, there is a special rate of 15% stamp duty land tax for companies acquiring residential dwellings and also a rate of 28% capital gains tax on ATED related chargeable gains.

If you would like further advice on anything raised in this article, please contact us at action@wrightvigar.co.uk or call on 0845 880 5678.