A Tax on Envelopes

26 December, 2013

Not content with charging companies that own high value residential premises a penal rate of Stamp Duty Land Tax (SDLT) (15% for properties valued above £2,000,000) the Government introduced, with effect from 1 April, the Annual Tax on Enveloped Dwellings (ATED).  Originally known as the Annual Residential Property Tax the tax was rebranded after the March budget perhaps with the intention of removing the link in its title to the much discussed mansion tax.  To all intents and purposes the ATED is, in fact, a mansion tax but only applies in relation to certain properties.

In order to be subject to ATED a property must be a dwelling in the UK valued at more than £2,000,000 and be owned, completely or partly, by a company, a partnership or certain types of collective investment vehicle.     It is therefore the second limb of the Government’s attack against the enveloping of high value properties in companies, the first being the higher rate of SDLT introduced last year.

The relevant date for valuation is 1 April 2012 and the tax is payable at the rate of a maximum of 0.75% of the value reducing to around 0.35% or lower for very high value properties.  Each property is placed in one of four rating bands with tax payable as follows:

Property Value Annual Tax
£2,000,001 – £5,000,000 £15,000
£5,000,001 – £10,000,000 £35,000
£10,000,001 –   £20,000,000 £70,000
£20,000,001 and  over £140,00

 

This banding arrangement produces some anomalies. For example, where a property is valued at £2,000,000 the charge is 0.75% of its value whereas one valued at £10,000,000 pays 0.35%. If the property is worth £120,000,000 the tax falls to 0.12%.

Every owner of a potentially chargeable interest will be required to submit an ATED return.  This year the return will be due by 1 October with payment due by 31 October.  In future years, the return and the payment for the forthcoming year must both be submitted by 30 April.  A number of categories of owner will be able to claim relief from the charge including, most importantly, companies that let the property on a commercial basis where the property is not occupied or available for occupation by anyone connected with the owner.  Property trading companies, properties held by charities, those open to the public, working farmhouses and properties held by property trading businesses will also be exempt.  However, in order to claim the exemption it will still be necessary to submit an annual return.  We do not yet know what form the return will take since it is only to be available from August 2013.

The legislation will also include a mechanism for checking the value of a property, the so called pre return banding check.  This allows an owner to apply to HMRC for agreement that a property falls within a particular band.  This can only be done where an owner believes the property falls within a 10% variance of a banding threshold and no doubt proper valuation evidence as to the value at 1 April 2012 will be required.  The detailed proposals for carrying out this check are expected to be available from 1 June 2013.

Therefore, those who own or control enveloped properties can do nothing for the time being other than gather up valuation evidence as at 1 April 2012.  Over the summer they will need to confirm which band their property falls into and then complete the annual return by no later than 1 October.  However, all of this legislation is contained in the draft Finance Bill and is subject to amendment as the Bill proceeds through Parliament.  It is anticipated that the Bill will receive Royal Assent in July or August.

It remains to be seen whether the ATED is a forerunner for a more wide ranging tax on high value properties – the so called “Mansion Tax”.