Important ATED deadlines for rental property owners

Following the introduction of the tapered withdrawal of tax relief on mortgage interest payments, many investors are starting to consider owning residential investment property through a limited company. When residential property is owned by a company, the ability to offset interest payments against tax liabilities is not restricted as it is for individuals, but there are other considerations to weigh up before pressing ahead with this strategy.

One of the first considerations is the cost of the mortgage itself. The commercial rates of interest for company owned properties are usually higher than those offered to individual owners, even when compared with standard buy to let mortgages. This means that your mortgage costs may be greater, even if the tax relief is not restricted. A careful evaluation of the pros and cons is therefore needed.

It is also important to consider whether you will wish to retain profits within the company for future investment, or whether you will wish to extract them for personal use. If you wish to extract them, there will be an additional tax charge in doing so, which may mean the structure is not tax effective.

In addition, you need to consider whether your company owned residential property will be subject to ATED (Annual Tax on Enveloped Dwellings). ATED is a tax charge levied on non-natural persons (i.e. companies, partnerships where at least one partner is a company and collective investment vehicles) which own a UK residential dwelling. It was originally introduced as an anti stamp duty avoidance measure for property valued at £2m or above from 1 April 2013. This was extended to catch £1m properties from 1 April 2015 and now also applies to £500,000 properties, effective from 1 April 2016.

Returns for ATED are now due

ATED is levied on a sliding scale, depending on the value of the property owned. The cost ranges from £3,500 for a £500,000 property, rising to £23,350 each year for a £2m property. For all properties valued at over £500k, an ATED return, together with any tax payable, will be due on 30 April. For landlords with property portfolios in and around London and the South East, many properties will fall into this price bracket.

Property revaluations required for ATED

Properties that fall under ATED also require a revaluation every 5 years. Those already subject to the tax since it was first introduced in 2013 will need to be revalued in 2017 and the recorded valuation revised. This revised value will then apply for the years from 1 April 2018 to 31 March 2023.

Can you get tax relief from ATED?

In some circumstances, property may attract tax relief from ATED providing certain criteria are met. For example, you may be able to claim relief if your property meets one of the following conditions:

• Let to a third party on a commercial basis and isn’t occupied, or available to be occupied, by anyone connected with the owner;
• Open to the public for at least 28 days a year;
• Part of a property development business and is being developed for resale;
• Being used to provide living accommodation to qualifying employees;
• A farmhouse occupied by a farm worker;
• Providing registered social housing.

If ATED applies to your property, even though relief may be available, a return must be submitted to HMRC in the tax year to which the charge relates. A £100 penalty will apply if you are late in filing the ATED return, with no period of grace. Following that, for the first 90 days of late filing, a further penalty of £10 per day will be charged, following which a charge will be made of either £300 or 5% of the tax due, whatever is the higher figure. After 6 months, the penalties can be as high as £1,300.

If you would like to discuss any aspect of property tax issues in more detail, contact partners@rjp.co.uk