Please note that the information herein is of a general nature and you should not act or refrain from acting on it without professional advice on the specific facts of your case. No liability is accepted by the author or Sykes Anderson Perry Limited in respect of this article. This is a complex subject and the above is a basic outline only and is intended only as a general guide. Nothing herein constitutes financial advice.
As a result of UK taxes on income and capital gains, it may be attractive to acquire buy-to-let properties via a company (be that a UK registered company or an overseas entity). Purchasing in a company will though bring your ownership within the scope of another tax known as the “Annual Tax on Enveloped Dwellings” (ATED). This is an annual charge which has applied from April 2013. It is relevant to companies which own UK residential properties worth in excess of £500,000 (the threshold was initially £2 million but this was extended to properties in excess of £1 million from April 2015 and to properties in excess of £500,000 from April 2016). This applies in the same manner to UK and non-UK companies.
For the current year, the chargeable amounts are as follows:
|Property Value||Annual Charge 2018-19|
|£500,000 - £1m||£3,600|
|£1m - £2m||£7,250|
|£2m - £5m||£24,250|
|£5m - £10m||£56,550|
|£10m - £20m||£113,400|
The value to be attributed to the property is to be assessed as of 1 April 2017 or the date of the property purchase, if later. The company will have to revalue all its properties as at 1 April 2022.
There are specific rules if property is converted part way through a tax year or if it is demolished and re-built.
This tax is intended to target structures where property is held for the use of the beneficial owner. As such, reliefs apply where there is a commercial purpose for holding the property in a company. One of these is a property rental business relief, which will be available where the property is either rented out on a commercial basis or steps are being taken to rent it out without delay. Care has to be taken in case a beneficial owner or connected person is entitled to occupy the property at any stage. When that is the case, a charge can arise and can apply for a longer period than the actual period of occupation.
Importantly, even if a relief applies it is necessary to file a return each year and claim the relief. HMRC may require some evidence that the relief should apply – marketing material etc. will be helpful here.
Also, a point which is often overlooked is that if a residential property is acquired in a company for more than £500,000 part way during a tax year it will be necessary to file an ATED return within 30 days of acquisition (the same time limit as for Stamp Duty Land Tax).
The deadline for submissions of ATED returns is 30 April each year.
It is important to get specific advice about any purchase and which structure makes most sense from a tax perspective. We can assist with advising on structuring and with preparing ATED returns.