For annual tax on enveloped dwellings (ATED) returns due for the tax year commencing on 1 April 2023 and the four subsequent tax years, a new valuation date of 1 April 2022 will be used to establish the reporting obligation and tax liability for in-scope properties held on that date. ATED was introduced in 2013 as part of a package of measures to discourage the indirect ownership of high-value UK residential property (valued in excess of £500,000) through companies and certain other entity types, but the impact of inflation has extended the scope of the tax to more modest properties.
The Office for National Statistics UK house price index figures for the month of April 2022 may be used as a tool by HMRC to help it identify taxpayer valuations it wishes to challenge. Acquiring a professional valuation, specific to the actual property as at April 2022, may therefore be advisable for in-scope taxpayers with such residential property. Whilst it will retain the right to challenge such valuations, where they are absent HMRC may seek to apply a valuation that it considers appropriate using its own valuers and other available information such as the house price index.
It is important to note that, given the effect of inflation on property values as at the revaluation date, many taxpayers could see themselves falling within the ATED regime for the first time, some of whom may be unaware of the requirement to reassess the valuation, with others potentially unaware of ATED altogether. For example, a relatively modest property that may have been worth £350,000 at the last ATED revaluation on 1 April 2017 may be valued in excess of £500,000 by 1 April 2022.
For those who fail, for whatever reason, to meet their ATED filing obligations, penalties can quickly accrue, including an initial late filing penalty of £100 for being just one day late, even if no tax is due because an exemption applies.
Whilst there may be up-front tax and other costs involved in doing so, those who reorganise the ownership of in-scope property assets by transferring them from existing corporate ownership structures so that they are held personally, may be able to avoid ATED filing obligations and the scope for ATED tax liabilities altogether, which may be more cost efficient in the long-run.
With the ATED revaluation, which will also see some chargeable properties falling into higher tax bands, a register for overseas entities that own UK land coming into force soon, and stamp duty land tax surcharges in place, it is becoming ever more costly to hold properties within corporate structures. Now may therefore be a good time for property owners to revaluate how their assets are held.