Non UK resident property investors and ATED
Background – Non UK resident property investors and ATED
As discussed in our article on the SDLT changes in this area, the Government used a penal tax charge (doesn’t look quite so penal any more when compared to the general SDLT rates for high value properties!) to stop the attraction of creating any new envelopes
The Government then turned its attention on attacking those which already exist.
With effect from 1 April 2013, that solution was ATED.
ATED does exactly what it says on the tin. It is an ‘annual tax’ and it is levied on ‘enveloped dwellings’. What glorious insight huh? Well, what do you expect, you don’t pay a subscription for this service do you?
The tax was first introduced to be levied where a Non-Natural Person (“NNP”) owns a UK residential dwelling valued at more than £2 million.
An NNP can be a Company, whether a UK or a non-UK Company, a partnership with a corporate partner or a Collective Investment Scheme.
A trust is not a NNP, even if it has a corporate Trustee. (I have recently come across a Trustee who had filed an ATED return for a client – I am not sure their client was so pleased with this charitable contribution to HMRC!)
Furthermore, after proving to be a bit of a get rich quick scheme for the Government, it was announced at the 2014 Budget that ATED will be expanded to cover:
- properties valued above £1 million from 1 April 2015 (£7,000 per annum); and
- above £500,000 from 1 April 2016 (£3,500 per annum). This represents a rapid downgrading of the threshold and is likely to cover most London properties by April 2016.
Depending on the value of the property, a flat rate of tax is applied to the value. This is paid annually through a special tax return.
Non UK resident property investors and ATED – ATED charges
Depending on the relevant period, the ATED rates are as follows:
|Value of property||2013/14||2014/15||2015/16||2016/17||2017/18|
|More than £500,000 but not more than £1 million||N/A||N/A||N/A||£3,500||£3,500|
|More than £1 million but not more than £2 million||N/A||N/A||£7,000||£7,000||£7,050|
|More than £2 million but not more than £5 million||£15,000||£15,400||£23,350||£23,350||£23,550|
|More than £5 million but not more than £10 million||£35,000||£35,900||£54,450||£54,450||£54,950|
|More than £10 million but not more than £20 million||£70,000||£71,850||£109,050||£109,050||£110,100|
|More than £20 million||£140,000||£143,750||£218,200||£218,200||£220,350|
As can be seen from the above, the Government has aggressively extended the ATED regime by reducing the value of properties within the net and significantly increasing the tax charge at the higher end.
The changes to the non-dom rules in relation to IHT (and particularly the fact that UK residential property cannot be excluded property) means holding the property through a non-UK company does not derive any IHT benefits any more. A valid question is whether ATED really has any place in the UK tax system any more.
However, HMRC and Government has become addicted to the easy money it provides and no moves seem to have been taken on this point.
Buildings that are not ‘dwellings’
Some buildings are not deemed to be dwellings and so are not included under ATED, these buildings are:
- guest houses
- boarding school accommodation
- student halls of residence
- military accommodation
- care homes
For the avoidance of doubt, other commercial property is not with ATED either.
Reliefs from ATED
It should be noted that where one believes that a relief is in point then a tax return must be filed claiming the relief.
There are reliefs from ATED in respect of the following:
- Where a dwelling is held by a property development company, or as trading stock.
- Where the dwelling is held by a property rental business and the building is let out to a third party on a commercial basis.
- Where a dwelling is conditionally exempt from IHT and regularly opened to the public or used to provide accommodation or other services to the general public on a commercial basis.
- Where the property is a farmhouse occupied by working farmers.
- Where a dwelling is held by trading companies for the use of employees in the trade.
- Where a dwelling is owned by a charity and held for charitable purposes.
- Where a dwelling is owned by public or government body or for social housing.
A NNP needs to file an ATED return with HM Revenue & Customs (HMRC) for each chargeable period that a qualifying property is held.
ATED related CGT charges
From 6 April 2013, NNPs within ATED – and disposing of UK residential property in excess of £2 million – have been subject to CGT at 28 per cent on the gain accrued since that date.
The 2014 Budget announced that the minimum threshold will decrease from £2 million to £1 million with effect from 6 April 2015 and then to £500,000 from 6 April 2016.
Like the main ATED, businesses can claim a similar set of exemptions from ATED-related CGT.
HMRC must be notified of ATED-related capital gains by 5 October following the end of the tax year in which the disposal was made. An ATED-related CGT return must be filed with HMRC and the CGT paid by 31 January following the end of that tax year. Penalties will apply for late filing and late payment.
Of course, the ATED related CGT charge was introduced before the general extension of the jurisdiction of capital gains for non-resident to include UK residential property.
A point on valuation (and other miscellaneous matters)
For ATED the value of the dwelling is its value:
- on 1 April 2012, if you owned your interest in the property at that date – this date is to make sure that people who needed to pay ATED at the outset could work out the right value ahead of the first period that it was due;
- then each 1 April falling 5 years, or multiple of 5 years, after 1 April 2012;
- the date the property was acquired, if that is a later date;
The valuation figure used for the first 5 ATED return periods was based on the valuation at 1 April 2012, or when you bought or acquired it, if later.
All properties within ATED where (Or should have been) revalued on 1 April 2017 (to cover the ATED returns for the 5 year periods starting on 1 April 2018).
A person within the scope of ATED will need to self-assess the value of the property. This can in theory be done by themselves or, as we would recommend, by using a professional valuation’s expert.
The valuation will be reported on the ATED return.
Valuations must be on an open-market willing buyer, willing seller basis. The value must be a specific price. As such, range valuation is not acceptable. For example £2,135,000, not ʻ£2,100,000 to £2,150,000ʼ.
The valuation will decide which ATED band (as set out above) the property will fall into. This could change if the property is developed or falls outside ATED completely, or moves back in again. For example, it becomes a non-residential property and then residential again.
If HMRC challenges a valuation and find that it to be incorrect, the person responsible for paying ATED may have to pay penalties as well as the increased ATED payable, plus interest for late payment.
Non UK resident property investors and ATED is the fourth article in a collection of articles on non UK resident investors property tax for residential properties. The other articles are:
- Non UK resident property investor tax: An introduction;
- Non UK resident investor tax: SDLT;
- Non UK resident investor tax: 3% Additional rate of SDLT;
- Non UK resident property investors and ATED;
- Non UK resident investor tax: Capital Gains Tax;
- Non UK resident investor tax: IHT
For changes announced in the Autumn Budget 2017 regarding commercial property and shares in property rich companies then please see here.
If you have any queries on Non UK resident property investors and ATED then please get in touch