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ATED and Property Developers Tax Update

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Lucy Mangan - Menzies Accountant

Lucy Mangan – Partner

The deadline for filing an ATED return or an ATED Relief Declaration Return for the period 1 April 2016 to 31 March 2017 is 30 April 2016. For this period, the property value to which the ATED regime applies has decreased from £1 million to just £500,000, so many more companies (and other non-natural persons) are going to be required to file returns.

Most people are aware that companies who commercially let property to non-related parties can claim relief from an ATED tax charge by filing a Relief Declaration Return but there seems to be less awareness of the rules that apply to property developers.

Property developers can also claim relief from an ATED tax charge if a Relief Declaration Return is filed within the applicable time limits. Therefore any property developer holding residential property either in stock or work-in-progress (WIP) on 1 April 2016 must file a Relief Declaration Return by 30 April 2016 if the value of any individual property is £500,000 or more (this value was £1 million for the period from 1 April 2015 to 31 March 2016 and £2 million for earlier periods).

But at what point should the property value be assessed?

For a property rental business it is quite straightforward. The standard valuation date is 1 April 2012 or the date the relevant property was acquired, if this was after that date. So if a rental business holds a property on 1 April 2016 that was also held at 1 April 2012 but valued at less than £500,000 on that date, the ATED regime does not apply to that property and no Relief Declaration Return is required. There is no need to revalue the property at 1 April 2016, even if the property value is now likely to exceed £500,000.

For property developers however, the situation is a bit more complicated. The standard valuation dates of 1 April 2012 or acquisition still apply but the developer also needs to consider whether subsequent events have caused a revaluation date to be triggered. Where an existing dwelling is adapted or converted or a brand new dwelling is built, a new valuation date is triggered on the earlier of the date the new or converted dwelling comes into existence for Council Tax domestic rating purposes, or the day on which it is first occupied. Further complications can also arise if dwellings are acquired, demolished and a new dwelling or dwellings are built.

For example, if a property developer acquires a residential property for less than £500,000 and carries out substantial work to convert the property into two individual flats, each flat would need to be separately valued for ATED purposes on the earlier of the date they become rateable for council tax purposes or the date they are first occupied. If either (or both) of the flats are then valued at £500,000 or more, an ATED Relief Declaration Return will be required.

Be aware of ATED filing deadlines

Property developers also need to be careful of filing deadlines for ATED Relief Declaration Returns because these may need to be filed throughout the year and not just annually by 30 April.

If a Property Developers Relief Declaration Return is filed by 30 April 2016 for the 2016/17 ATED tax year, this will cover all new development properties either acquired, built or adapted in that year. No new additional declarations would be required for any new properties as long as these fall within the developers relief, i.e. they are development properties.

However, if a property developer does not hold any property in stock or WIP at 1 April 2016 a Property Developers Relief Declaration Return is not required and won’t be filed. In this case, the following alternative deadlines will apply:

  • If a new property costing £500,000 or more is acquired, the filing deadline for a Property Developers Relief Declaration Return is just 30 days from the purchase completion date.
  • If the development of a property is completed and at this point it is then valued at £500,000 or more, a Property Developers Relief Declaration Return is required to be filed within 90 days of the earlier of the date the property becomes rateable for Council Tax Purposes and the date it is first occupied.

It could be quite easy for property developers to fail to identify the need to file ATED Relief Declaration Returns and late filing penalties apply, even where no tax is due. If a return is more than 12 month late, the maximum penalty is £1,600 if there is no tax to pay.

The rules are complicated, so if in doubt, talk to someone in the tax team.

For more information about Menzies LLP or to talk to us about the impact of the new important payroll information, contact your Menzies Relationship Partner or contact Menzies.

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