Lucy Mangan – Partner
Whilst increases in property values are welcomed by most, this can have an unexpected impact for those owning residential properties falling within the Annual Tax on Enveloped Dwellings regime (ATED).
Since the introduction of ATED in April 2013, entities (corporates and “non-natural” persons such as partnerships) holding a UK residential dwelling have had to consider if the ATED rules apply and whether there is any ‘relief’ from an ATED charge.
What is the value of your property?
The ATED rules will ONLY apply if the market value of the property exceeds a set value taken at a prescribed point in time.
What is the relevant value?
Initially when the ATED rules were introduced the value was set at £2 million but from 1 April 2016 the key value has been £500,000.
What is the relevant date?
Up until now the relevant date in respect of the property’s market value was 1 April 2012 or acquisition whichever is later.
If a property’s value at this date was <£500,000 it did NOT fall into ATED so ATED could be ignored.
HOWEVER A CHANGE HAS COME!
The ATED rules require a revaluation of existing properties every 5 years from its introduction. The first 5 year revaluation date was 1 April 2017.
The key date is now therefore 1 April 2017 or acquisition if later.
What does this mean?
Properties falling into ATED first time.
As existing properties will be required to be revalued at 1 April 2017 more properties are likely to now breach the £500,000 limit and fall into the ATED regime for the first time.
It may of course be that in some cases the value of the property has fallen and the property falls out of the ATED regime however, this is likely to be rarer.
Properties already within the ATED regime where no relief available.
If no relief is available an ATED tax charge is payable. The charge is based on set ‘bands’.
ATED Tax Bands and Charges for 2018/19
|Valuation Banding||2018/2019 ATED Charge|
|£500,001 – £1,000,000||£3,600|
|£1,000,001 – £2,000,000||£7,250|
|£2,000,001 – £5,000,000||£24,250|
|£5,000,001 – £10,000,000||£56,550|
|£10,000,001 – £20,000,000||£113,400|
|£20,000,001 and over||£226,950|
The revaluation at 1 April 2017 could result in a property falling into a higher ‘band’ and the ATED charge increasing quite substantially. For example a property which cost £900,000 in 2013 could have a market value at 1 April 2017 of £1.1 million doubling the applicable ATED charge from £3,600 in the lower band to £7,250.
What do you need to do?
- Entities already claiming ATED reliefs (such as property developers or certain residential landlords) will not need to revalue the properties at 1 April 2017 provided the reliefs continue to apply.
- Other entities owning residential property should review their portfolios and the individual values of any residential properties at 1 April 2017 to ensure that any ATED compliance matters are complied with before HMRCs deadlines, if penalties are to be avoided.
The ATED filing deadline for properties falling into the regime which are held at 1 April 2018 is 30 April 2018. This deadline applies whether or not there is a relief.
If no relief then any 2018/2019 ATED charges are also payable by 30 April 2018.
Please note – The ATED rules can be complex and the above just covers the change in the relevant date for valuation purposes which applies to all relevant properties held at 1 April 2018. Revaluations of properties may also be required in other circumstances and different deadlines apply to properties falling into the regime but not held at 1 April. These are not covered in this article.