QUESTION. In 2014 I purchased a house for £750,000 using a limited company as the purchase vehicle. At that time the purchase fell below the tax on enveloped dwellings (ATED) charge value of £2 million. However, I was unaware that this limit has been reduced or indeed of the valuation rules. Have I underpaid tax?
ANSWER: You are correct in saying that your property falls within the ATED tax charge regime. ATED applies to residential dwellings in the UK valued more than £500,000, that are owned by a company or within a corporate wrapper a so called ‘non-natural’ purchaser.
The limit was originally £2m in 2013 but was reduced to £1m for 2015-16 and then to £500,000 from 2016 onwards.
You therefore have two issues, the first being that you should have filed ATED returns and paid the ATED charge annually from 2016 and the second issue is that your property may have moved up a band as the charge is banded. The bands start at £500,000 to £1m with an annual charge of £3,800 and increase progressively up to a £245,000 annual charge for a £20m property.
It is commonplace for business owners to use a company to acquire property as it prevents them from having to extract the money to buy the property from their company and suffer significant tax costs on extraction. They simply set up a company to buy the property and lend that new company money from their trading company.
This was also a way around higher stamp duty charges on the sale of the property as they would sell the shares in the company to the buyer as opposed to the property. All this has been closed in recent years by HMRC with punitive stamp duty charges on buying property via a company.
A lot of ATED property owners do not realise that their property must be re-valued every five years with the valuation date fixed on April 1 since 2012. This means that April 1 2022 was a valuation date. If you paid £750,000 for your property in 2012 it will have increased in value since then. Between 2012 and 2017 the average Northern Ireland property increased in value by 16 per cent so this would not have pushed your property into the 2nd ATED band (£1m-£2m).
However, between 2017 and 2022 the average Northern Ireland house price increased in value by 33 per cent, which would push your house value into the next ATED band which carries an annual tax charge of £7,700.
Every house is obviously different, but you need to get an open market value for your property to comply with the regulations.
In summary, you must register for ATED and submit six late returns and pay the six years of charges which will be approximately £26,700 plus interest and penalties unless you qualify for relief from ATED.
There are reliefs from the ATED charge the most common being for properties that are always let to unconnected third parties at full market rent and unavailable for anyone connected with the owner.
Another common exemption is for properties held for development or as trading stock by builders/developers.
Properties can also be being used by a trading business to provide living accommodation to certain qualifying employees and escape the ATED charge.
However, if your property qualifies for relief from the ATED charge, you must still file a return for the property even where no ATED is due because a relief is available, the return should be filed, and the appropriate relief claimed.
:: Paddy Harty (p.harty@fpmaab.com) is partner at FPM Accountants Ltd (www.fpmaab.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
