ATED has taken hold.
The first Returns were due to HM Revenue & Customs on the 1 October 2013 with the initial payment due at the end of that month. 30 April 2014 will be the next return date and payment deadline.
The aim of ATED (originally called the Annual Residential Property Tax) was to crackdown on the use of corporate vehicles which were avoiding paying taxes on residential properties.
In particular it was thought that the government was going to specifically attack overseas companies in this respect.
ATED is payable in relation to residential dwellings (including their gardens and secondary dwellings such as gatehouses and grounds) which are worth more than £2 million as at 1 April 2012 or from the date of purchase (if later) if the owner is a "non-natural person" such as a company (or a collective investment vehicle or partnership that includes a company). Both UK and overseas companies will be caught but not trustees or a company acting as a trustee of a settlement or companies acting as bare trustees for beneficial owners.
A flat rate is charged on the value and the good news is that property owners can provide their own valuations – either themselves - or by using a professional valuer. As such the ATED will be "self-assessed". However, no doubt HMRC will pay attention to the valuations put forward in relation to premises – probably more so if there is no professional valuation.
Farmhouses and commercially let accommodation are not caught.
The tax will be levied as follows:
Property Value Tax 2013-2014
£2 million to £5 million £15,000
£5 million to £10 million £35,000
£10 million to £20 million £70,000
More than £20 million £140,000
Property owners will need to be careful not to incur penalties and interest as with any other tax.
There are claims that only a small amount of revenue will be earned by taxing non natural persons with ATED but it may help the government to show that it is clamping down on purported tax avoidance if nothing else.
Non natural persons need to avoid making a knee jerk reaction by transferring the property for example to a beneficiary or major shareholder as Stamp Duty Land Tax will be payable.
If the transfer is to another non natural person then SDLT will be charged at a rate of 15%.
If however the property is transferred to an individual then SDLT will only be payable at 7% - but this will still amounts to a whopping £140,000 on a property worth £2 million – over nine years worth of ATED.
Transferring the property from a corporate structure to an individual might ultimately also lead to other difficulties. There may be other reasons why the existing structure should be left in place - such as confidentiality, capital gains taxation, income tax liability, SDLT on the transfer of the property and perhaps taxation overseas.
HMRC recently issued some guidance on the SDLT implications of de-enveloping a property owned by a company by means of a capital distribution to shareholders following the liquidation of that company.
However, each situation is different and appropriate legal and financial advice shall be taken.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.