New Tax Return Introduced Which Affects High-Value UK Residential Property Owners

10 Jul 2013

On 1 July 2013, HM Revenue and Customs (HMRC) released a five page draft version of the tax return to be completed by non-natural persons (UK or non-UK) owning UK residential property valued above £2 million.

Baker Tilly (in the UK) has outlined the five main sections that make up the return form.

The Annual Tax on Enveloped Dwellings (ATED) concept was first announced in 2012 as part of the UK tax authority’s three pronged attack against perceived Stamp Duty Land Tax (SDLT) avoidance by non-natural persons who own UK residential property valued above £2 million. It also includes:

  • An increased SDLT rate of 15%
  • A widening of the base for Capital Gains Tax.

Non-natural persons are defined broadly as:

  • Companies
  • Certain collective investment schemes
  • Partnerships including one or more of the above as a member.

The annual tax charge is for one of four fixed amounts, ranging from £15,000 to £140,000, for properties valued within four bands starting at £2 million, with the highest charge for properties worth above £20 million. For valuation purposes, it is the market value at 1 April 2012, or the date of acquisition if later, that forms the basis of the charge (further details are set out below).

Relief from the ATED charge is available but, importantly, HMRC will still require an ATED return to be completed to claim the relief (see further details below).

The New ATED Return

Since the return form was released, Baker Tilly have reviewed the structure, what questions HMRC are asking, how in practice they think the return will work and what information you will need to have ready to make the return.

The five main sections that make up the ATED return form.

1. Chargeable person’s details

This section requires the chargeable entity’s information including, importantly a contact email address which will be required so that HMRC can acknowledge receipt of the return form and provide a payment reference and details of how to pay the tax due. The form appears to be more geared towards UK companies, as there are also boxes available to enter business identifiers (eg company and VAT registration numbers). Whether HMRC wishes overseas companies to supply their local references is unclear although again, with information collection being a key area for HMRC, this may be the expectation.

Importantly also, if ATED relief is being claimed, one of nine possible relief codes is available from the drop down box, starting with ‘Property rental businesses’ (to include the four special conditions – sale, demolition, and the two types of conversion) – through to ‘Registered providers of Social Housing’. If more than one relief applies, then care will need to be taken to select the most appropriate relief.

It should be noted that a company acting as a trustee of a trust owning a UK property is exempt from the ATED and no return is required to be submitted by the trustee.

The period dates and self-assessed ATED liability also need to be entered in sterling, including £0 if there is no liability, which may or may not be straightforward depending on the circumstances.

2. Property

The property section requires such details as the address, date, value at acquisition and ATED valuation. Valuations will, as always, be an area of HMRC interest and it is necessary to confirm whether a professional valuation or HMRC pre-return banding check (PRBC) has been obtained. Professional valuation has not been defined.

PRBC

The PRBC request must be made online and requires copious details of the property including the taxpayer’s proposed valuation of the property. HMRC’s stated aim is to provide a response within 30 working days, either confirming the banding proposed, disagreeing with the banding, or asking for further information to assist it in deciding on the correct banding. This response time may leave the taxpayer in a position of uncertainty, until the response is received, and then very little time to file the return by 1 October 2013, even if HMRC does eventually agree the proposed valuation band. In some cases a self-assessment or professional valuation may be the better option rather than reliance on obtaining a PRBC.

The property section also requires entry of the property title number. Baker Tilly has seen evidence of HMRC using HM Land Registry information in enquiries and cross referencing details will clearly be an important factor for HMRC in relation to the ATED. Indeed, if you cannot supply this number you need to give a reason why not.

3. Bank Details

As outlined on the form, these details are only required if a repayment (ie due to an in-year change) is being requested.

4 Agent’s Details

If an agent is completing the form on behalf of the taxpayer then the agent’s full details are required in this section. On the basis that, on page 1 of the form, the first stand-alone box for the taxpayer to tick is whether they have an agent, this suggests that HMRC is anticipating that agents will be used.

As Baker Tilly have previously outlined, overseas entities in particular, will not, for various reasons, feel comfortable communicating with HMRC. The agent option is therefore likely to be preferred. In addition, and more importantly, the judgments that taxpayers will need to make in relation to the factors outlined above are likely to benefit from input from an experienced UK tax specialist to prevent complications further down the line.

5. Declaration

To be expected, there is a section for the person (eg owner, manager, director, secretary, agent) to declare that the information supplied in the ATED return is correct and complete. As the form is submitted electronically, with perhaps some requirement for pre-registration, no signature is required.

 For further information please contact Michael Flaherty from Baker Tilly or find your local member firm in the worldwide directory.

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