ATED – Impact on Limited Company Landlords?

I needed to clarify my understanding of ATED so below is from the .GOV site >> https://www.gov.uk/guidance/annual-tax-on-enveloped-dwellings-the-basics

Overview

ATED is an annual tax payable mainly by companies that own UK residential property valued at more than £500,000.

You’ll need to complete an ATED return if your property:
is a dwelling
is in the UK
was valued at more than:
£2 million on 1 April 2012, or at acquisition if later, for returns from 2013 to 2014 onwards
£1 million on 1 April 2012, or at acquisition if later, for returns from 2015 to 2016 onwards
£500,000 on 1 April 2012, or at acquisition if later, for returns from 2016 to 2017 onwards
is owned completely or partly by a:
company
partnership where one of the partners is a company
­collective investment scheme - for example a unit trust or an open ended investment vehicle

A new ATED band came into effect on 1 April 2016 for properties valued between £500,000 and £1 million. The normal filing and payment date for properties falling into this new band is 30 April 2016.

ATED returns must only be submitted on or after 1 April in any chargeable period.
There are reliefs and exemptions from the tax, which may mean you don’t have to pay.

Meaning of ‘dwelling’

Your property will be a dwelling if all or part of it is used, or could be used as a residence, for example a house or flat. It includes any gardens, grounds and buildings within them.

Some properties aren’t classed as dwellings. These include:
hotels
guest houses
boarding school accommodation
hospitals
student halls of residence
military accommodation
care homes
prisons

What you need to pay

The amount you’ll need to pay is worked out using a banding system based on the value of your property.
Chargeable amounts for 1 April 2016 to 31 March 2017
Property value Annual charge
More than £500,000 but not more than £1 million £3,500
More than £1 million but not more than £2 million £7,000
More than £2 million but not more than £5 million £23,350
More than £5 million but not more than £10 million £54,450
More than £10 million but not more than £20 million £109,050
More than £20 million £218,200

So how does a block of 5 flats that cumulatively is worth £1m, but individually worth £200k, fit into ATED I wonder?

Relief is given for a "qualifying residential property business" the HMRC technical guide gives a good definition of what constitutes such a business: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/375750/ated-tech-guide.pdf Section 31.3

What is not clear is exactly how much relief is you qualified that you'd be entitled to.

If large numbers of private LLs were to move properties into Ltd Co.'s and the Chancellor was to lose significant revenue as a result.

It would be very tempting for the Chancellor as an "anti-avoidance" measure, because of those 'greedy' LLs, to lower the ATED threshold, but that's pure speculation. This though would potentially hit the Tories build-to-rent pals (donors).

If you are above the ATED reporting threshold you will have to make an ATED return. However, so long as you qualify ie you or a close family member do not live in the property and you let it out on a commercial basis, then you can claim full relief by entering Relief Code "1". See Section 19 in the ATED Return guidence notes at https://www.gov.uk/government/publications/stld-annual-tax-on-enveloped-dwellings-ated/annual-tax-on-enveloped-dwellings-returns-guidance
"19 ATED relief code
19.1 The list of ATED relief codes are:
1. Property rental businesses – to include the special conditions for sale, demolition, and conversion"

Lets just hope the government don't reduce or remove the reliefs!!!

eu-insipred wealth tax?

Few points to note:

@Paul - CGT is not paid by companies, it is always corporation tax. Where companies make gains the computation is not the same as for individual CGT as companies can claim indexation allowance from the date of purchase and the tax rate is the CT rate.

For ATED gains there is a specific way of working out the gain and the corporation tax rate for the part of the gain which arises under the ATED rules is 28%. The part of the gain not considered as an ATED gain is then taxed at CT rates. You will not pay tax twice on the same gain.

Where a dwelling ("if all or part of it is used, or could be used as a residence, for example a house or flat. It includes any gardens, grounds and buildings within them.")(for buildings not classed as dwellings see Neil’s post above) is valued at more than £500,000 at 1 April 2012, or at acquisition if later, then an ATED return must be made for the 2016 tax year by 30 April 2016. In the return various exemptions can be claimed so that the amount due is reduced to nil.

Note – new valuation date for ATED to be 1 April 2017 and every 5 year anniversary thereafter.

However a return must be made and the exemptions claimed. If you have not made the return for 2016, due on 30 April 2016, then you are already late and will be subject to penalties for late filing.

@Bill - I would consider each of the flats to be a separate dwelling and therefore outside of the charge, but if this is your situation take separate advice. (no liability for this opinion assumed)

This is a complicated area of property ownership and if you own a dwelling with a value over £500,000 in a limited company you must seek advice as to how to proceed.

Reply to the comment left by "Simon Lever" at "01/12/2016 - 13:35":

Simon – I agree that CGT is not paid by a Ltd Co but part of the HMRC site (entitled ‘CGT on high value residential property’ opens with the comment

‘If you pay Annual Tax on Enveloped Dwellings (ATED) when you sell the property you'll need to pay Capital Gains Tax’

and then states:

You’ll need to pay Capital Gains Tax (CGT) called ATED-related Capital Gains Tax if you sell a residential property which is completely or partly owned by a:
• company
• company that is a partner in a partnership
• collective investment vehicle, for example a unit trust or an open-ended investment company.'

…hence my confusion!