Annual Tax of Enveloped Dwellings – Reporting Deadline 30 April 2016
- Is your business carried on by a company or a partnership with any corporate partners?
- Does the company or partnership own any residential properties?
- Is any individual property valued at £500,000 or more?
If the answer to all three of these questions is yes, then please read on as a tax reporting deadline is fast approaching.
Background
ATED was introduced from April 2013, and levies an annual tax charge on ‘non-natural persons’ (broadly, companies but not trusts) which have interests in dwellings in the UK.
Initially, this was limited to dwellings valued at £2m or more on 1 April 2012, or later acquisition date, but this limit came down to £1m from 1 April 2015 (the valuation date still being 1 April 2012, or later acquisition date).
This limit is further reduced to £500,000 from 1 April 2016, thus bringing many more companies and properties into the net. The charge for 2016/17 for properties in the £500,000 to £1m band is £3,500. The charges for properties in the bands above £1m are expected to be announced in the Budget on 16 March 2016, but, to give an idea of the likely levels, the 2015/16 charges are given here:
| Property value | Annual charge 2015-16 (£) |
| £1m – £2m | £7,000 |
| £2m – £5m | £23,350 |
| £5m – £10m | £54,450 |
| £10m – £20m | £109,050 |
| More than £20m | £218,200 |
Return deadline
Returns for 2016/17 have to be submitted by 30 April 2016, and so it is important that you make yourself aware if your company has interests in any dwellings whose value falls within this extended range (or, indeed, within the previous range, as returns will again be needed).
Reliefs available
There are several reliefs from the charge, notably:
- Properties rented out to unconnected persons
- Properties open to the public
- Working farmhouses
- Property developers
- Property traders
- Properties occupied by certain employees or partners
Certain extensions to these reliefs are expected to be confirmed on Budget Day, 16 March.
Charitable companies will generally be exempt from ATED, but there are circumstances where the exemption will not apply, for example where a property is, or may be, occupied by someone connected with a donor, and it is reasonable to assume that the gift and that occupation are not independent.
Claiming reliefs
The reliefs do not mean that a return is not needed – the reliefs have to be claimed. However, in an effort to reduce compliance costs, HMRC have introduced a series of ‘Relief Declaration Returns’, allowing relief to be claimed without actually having to list the properties to which they relate, provided the relief reduces the charge to nil.
Please note that, even if the value is below £500,000 on 1 April 2012 (or later acquisition), there is to be a revaluation on 1 April 2017, which value will apply for five years, beginning 2018/19.
In the event that you are unsure as to the value of a property, then, provided you believe it to be within 10% of one of the banding thresholds AND the charge is not relieved to nil, then you may apply to HMRC for a ‘Pre Return Banding Check’ – this will not tell you what HMRC consider the value to be, they will merely tell you which side of the line they consider that it falls.
What do I need to do?
You need to consider if your company has an interest in any dwelling valued at £500,000 or more at 1 April 2012, or later acquisition date.
If this is the case, or you think it may be, then speak to us, even if you believe that one of the reliefs will apply. As HMRC can charge penalties for non-compliance, this is not a matter to be ignored.
Clearly, a brief note such as this can only give a broad overview of the requirements, and, not least, the conditions for relief to apply, so you should discuss with us if you have any queries.
Consider paying dividends before 6 April 2016
Although mentioned in previous updates it is well worth repeating. Those running their own companies should consider paying dividends before 6 April 2016 when the new system of dividend taxation starts.
Although the first £5,000 of dividends will be taxed at 0% from 2016/17, once that has been used up there will be a 7.5% across the board increase in the rate of tax on dividends. Please contact us to arrange a meeting to discuss this further.
Buy new machinery before the end of the tax year/accounting year end
Those running a business and making up accounts to 31 March or 5 April should consider buying plant and machinery to take advantage of the Annual Investment Allowance (AIA) of £200,000.
The AIA provides a 100% tax write off for equipment used in your business. This tax relief extends to fixtures and fittings within business premises such as electrical, water and heating systems. There is also 100% tax relief if you buy a new car that emits no more than 95g CO2 per kilometer and an increasing number of cars now fall below that limit.
Note that 5 April is not relevant if your business makes up accounts to a date other than 5 April. If your business year end is say 30 June, then you would need to acquire the equipment before that date to get the 100% tax relief.
But delay replacing furniture in buy to lets until after 6 April 2016
For those with furnished rental properties, a wear and tear allowance of 10% of income can be claimed up until 5 April 2016. After this date tax relief will be given for the replacement of furniture, including white goods as costs are incurred.
Therefore if it’s possible, waiting until after 5 April to incur costs of replacing furniture should maximise the tax relief. The changes are also good news for those landlords renting out properties unfurnished but providing white goods where the tax relief had been withdrawn in 2013.
Don’t lose your personal allowance
For every £2 that your adjusted net income exceeds £100,000, the £10,600 personal allowance is reduced by £1. Pension contributions and Gift Aid can help to reduce adjusted net income and save tax at an effective rate of 60%.
Annual pension allowances are set to reduce again for some individuals after 5 April 2016 but it is also important for everyone to review their contributions prior to 5 April as unused allowances from previous years may also drop out of availability.
The pension carry forward rules allow individuals to benefit from any unused allowances from the previous three tax years. This is generally the difference between the old £50,000 annual pension allowance and your pension input that year and can be added to your relief for 2015/16. Note that the annual pension allowance is £40,000 for 2015/16 and 2016/17, although those individuals with income over £150,000 will have their annual pension allowance reduced by £1 for every £2 over £150,000.
To avoid losing pension relief brought forward from 2012/13 which lapses 5 April 2016, consider making an additional pension payment before 5 April 2016. If your pension input was £24,000 in 2012/13 then there is £26,000 unused relief available to add to your 2015/16 allowance. You would need to make gross pension contributions of at least £66,000 (£40,000 plus £26,000) to avoid losing this generous relief.
Make charitable payments under gift aid to save more tax
Higher and additional rate taxpayers should make any charitable payments under Gift Aid so that they obtain additional tax relief. The charity will also be able to reclaim the basic rate tax from HMRC making it even better.
Year end capital gains tax planning
Have you used your 2015/16 £11,100 annual exemption?
Consider selling shares where the gain is less than £11,100 before 6 April 2016. Also, if you have any worthless shares, consider a negligible value claim to establish a capital loss. You may even be able to set off that capital loss against your income under certain circumstances.
Used your 2015/16 ISA allowance?
Whilst the personal savings allowance will come in from 6 April 2016 for basic and higher rate payers, using ISAs may still be beneficial.
Your maximum annual investment in ISAs for 2015/16 is £15,240. Your investment needs to be made before 6 April 2016. In addition, have you thought about investing for your children or grandchildren by setting up a Junior ISA? In the 2015/16 tax year, you can invest £4,080 into a Junior ISA for any child under 18.
Other tax efficient investments
If you are looking for investment opportunities, have you considered the Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS)?
EIS investments in certain qualifying companies allow you to set off 30% of the amount invested against your tax bill as well as capital gains tax (CGT) deferral.
An even more generous tax break is available for investment in a qualifying Seed EIS company where income tax relief at 50 per cent is available and in addition it is possible to obtain relief against your 2015/16 capital gains. Both EIS and Seed EIS also provide a CGT exemption when the shares themselves are sold after 3 years. Note however that qualifying EIS companies tend to be risky investments so professional advice should be taken.
A 30% income tax break is also available by investing in a Venture Capital Trust.
Inheritance tax planning before 6 April 2016
Have you made use of your annual Inheritance Tax (IHT) exemptions?
The annual exemption is £3,000 per donor (plus last year’s £3,000 exemption if you did not use it). Also consider making regular gifts out of your income to minimise the growth of your estate that will be liable to IHT. Gifts out of your surplus income are not subject to IHT if properly structured.
