Q&A: ATED and tax compliance on new dwellings

In our weekly Q&A, Vivienne Cheung, tax adviser at Croner Taxwise, examines whether the annual tax on enveloped dwellings (ATED) on high value residential properties is payable

My client has a limited company that has acquired some land to develop. They are going to develop some high value residential properties that are going to be let out on a commercial basis to third parties. One of the properties is going to be the main residence of the sole director/shareholder of the company and they will be paying a commercial rate of rent. 

As it is currently undeveloped land, at what point do we need to consider the annual tax on enveloped dwellings (ATED) as the residential property value is likely to exceed £500,000? Is there relief from ATED where the properties are let out commercially?

Part 3 Finance Act 2013 (FA 2013) sets out the provisions for the ATED charge. For periods from 1 April 2016, a company, a partnership (with at least one corporate member) or a collective investment vehicle that own single-dwelling interests in the UK with a taxable value over £500,000 will need to consider the ATED charge.

To determine what is meant by ‘taxable value’ and at what point we determine the taxable value, we need to look to section 102, FA 2013. It is essentially the market value at the end of the most recent valuation date. In general, a valuation date is:

  • 1 April 2012;
  • each 1 April falling every five years after 1 April 2012;
  • the effective date of any substantial acquisition of a chargeable interest by a company, an acquisition as a result of which the interest became an asset of a partnership or for the purposes of a collective investment scheme; or
  • the effective date of any substantial disposal of part (but not the whole) of the interest.

On these valuation dates, the taxable value would need to be established to determine if the ATED charge applies.

New dwellings

As your client is developing the high value residential properties as opposed to acquiring existing dwellings, there are special provisions to determine the taxable value. The valuation date for ATED purposes is set out in s124, FA 2013 for such scenarios.

Where a dwelling is being or has been constructed, the valuation date in the case of a single-interest dwelling is the earlier of:

  • the completion day; or
  • the day on which the dwelling is first occupied.

The completion day is essentially the day on which the dwelling is treated as having come into existence for the purposes of council tax or, if situated in Northern Ireland, domestic rating purposes.

Your client would need to ascertain the value at the earlier of the two above dates for each property, at which point if the value is in excess of £500,000, an ATED return for each relevant single dwelling interest would need to be filed and the tax paid within 90 days (s159 and s163, FA 2013).

Relief from ATED charge

There are various reliefs available under s133 to s150, FA 2013. In order for relief to potentially be available to your client, they must be running a property rental business on a commercial basis with a view to profit. There are restrictions from relief if the property is occupied by non qualifying individuals (discussed further below).

The relief is given based on relievable days and a day in a chargeable period is relieved under s133 if the property is being exploited as a source of rents or other receipts (other than excluded rents) or steps are being taken so that the property is going to be so exploited without undue delay.

As such, even where the property is empty, so long as the company is taking the necessary steps to find a tenant or prepare the property for let without delay, then those days can also be considered relievable days from ATED.

Please note that although the ATED charge might be fully relieved in a chargeable period, a relief declaration return would still be required to be submitted to claim the relief, within the same time limits that apply for the normal ATED return. Although, if the same relief is being claimed across all the properties, then only one relief declaration return would be required.

Occupation by a non qualifying individual

S133(2) provides that if a non-qualifying individual is permitted to occupy a single-dwelling interest on a day, then that day is not a relievable day. There are also look-forward and look-back provisions in s135 that means that for the next three subsequent chargeable periods there will be no relief, until a qualifying individual takes up occupation.

Relief might also be withdrawn for the earlier part of the chargeable period in which the non-qualifying individual is permitted to occupy the property and also for the prior period, again unless it was occupied by a qualifying individual.

A non-qualifying individual is defined in s136 and will capture the director/shareholder in your client’s case. If the property is going to be available for the director/shareholder to live in, then no relief will be available regardless of whether they pay a commercial rate of rent.

The above is only a brief outline of the rules around ATED and you should seek professional advice as required.

About the author

Vivienne Cheung is a tax adviser at Croner Taxwise

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