Property Owners Could be Hit with Unexpected Tax Bill in less than a Week

UK-based and offshore companies that own residential property in the UK could be liable to pay Annual Tax on Enveloped Dwellings (ATED) on 30^th April 2018, due to new valuation requirements, warns accounting, tax and advisory firm Blick Rothenberg.

Paul Haywood-Schiefer, the Assistant Manager at the practice, says: “There are [less than] two weeks left for property companies to complete their ATED return for the 2018/19 year and pay any tax due by 30^th April 2018. Failure to complete the return could result in penalties, even where there is no tax payment due.

“There has been a significant change for this ATED filing that may catch owners and directors of property companies unaware. Because of the revaluation mechanism, they now need to consider the value of properties at 1^st April 2017 (rather than 2012) to determine which tax band is applicable for the next five years. There are going to be plenty of people who simply aren’t aware of the need to revalue the property.”

He adds: “ATED applies to residential property valued at more than £500,000. With the revaluation, a property company that was not previously within the ATED regime could now be liable to file the returns and pay any tax due.

“There will be many situations where a company’s property has increased significantly in value, moving them into another tax band with an increased tax bill, and shareholders of these companies may have absolutely no idea!”

Property Owners Could be Hit with Unexpected Tax Bill in less than a Week

The period for an ATED return runs from 1^st April to 31^st March each year, and returns must be submitted by 30^th April in the year that the period relates to. For the ATED period 1^st April 2018 to 31^st March 2019, the return must be submitted by 30^th April 2018, with the tax due by that date. The amount of tax a company must pay will be dependent on the valuation of the property at 1^st April 2017.

The chargeable amounts for the period 1^st April 2018 to 31^st March 2019 are as follows:

• £500,000-£1m: £3,600
• £1m-£2m: £7,250
• £2m-£5m: £24,250
• £5m-£10m: £56,550
• £10m-£20m: £113,400
• £20m+: £226,950

Example

A property that had a value of £1.9m on 1^st April 2012 and a value of £2.2m on 1^st April 2017.

Using the old rules (2012 valuation), an ATED charge of £7,250 would be due. However, as the 1^st April 2017 valuation must be used, the charge would increase to £24,250, which is more than 330% of the previous year’s tax charge.

Rebecca Goldring, the Tax Manager at Blick Rothenberg, advises: “It’s not all doom and gloom though, as there are certain reliefs and exemptions from the ATED charge. For example, where the property is let to a third party on a commercial basis, where the property is being developed for resale by a property developer, or where it is owned by a property trader as stock of their business for the sole purpose of resale.

“Owners and directors may be aware that they don’t have to pay tax, but many will not know that they still have to file a UK ATED tax return to claim the relief. Failure to submit a return and to pay the tax charge by the due date will lead to penalties.”

Penalties range from £100 for a late filing and interest on the underpayment, to tax-based penalties of up to 100% of the tax due.

Make sure to have your taxes in order and seek expert advice if required.