- an annual charge, which is calculated by reference to the value of the property – this is based on a banding system;
- a higher 15% SDLT rate for residential property acquired by a ‘non-natural person’ in circumstances where the ATED conditions apply; and
- ATED-related capital gains tax, which applies on the disposal of the property.
- any individual who is connected to the corporate landlord, such as a controlling shareholder;
- the controlling shareholder’s spouse or civil partner, as well as their relatives, and any spouse or civil partner of those relatives; or
- the controlling shareholder’s relatives, as well as their respective spouses or civil partners.
ATED chargeable
period |
Time period |
Occupier |
1 April
2016 – 31 March 2017 |
1
January 2017 – 31 March 2017 |
Property
empty, but ATED relief available as part of rental business and is on the
market to let.
|
1 April
2017 – 31 March 2018 |
1 April
2017 – 30 April 2017 |
|
|
1 May
2017 – 31 March 2018 |
Smee
(tenant) – ATED relief available as property is occupied by a tenant. |
1 April
2018 – 31 March 2019 |
1 April
2018 – 31 December 2018 |
|
|
1
January 2019 – 31 March 2019 |
Property
empty – ATED relief should apply as it is on the rental market, but relief is
clawed back due to Michael’s occupation. |
1 April
2019 – 31 March 2020 |
1 April
2019 – 31 July 2019 |
|
|
1
August 2019 – 31 August 2019 |
Michael
– ATED relief unavailable as Michael is a non-qualifying individual. |
|
1
September 2019 - 31 March 2020 |
Property
empty – ATED relief should apply as it is part of a rental business and is on
the market for sale, but relief is unavailable due to Michael’s previous
occupation. |
1 April
2020 – 31 March 2021 |
1 April
2020 – 31 December 2020 |
Looking forward (periods subsequent to occupation by non-qualifying individual) – Any void period that falls within the current and subsequent three chargeable periods is ineligible for the relief.
The only way to get the relief back again within this timeframe is to find a tenant as quickly as possible.
In this example, it follows that two whole years’ worth of relief is lost, and not just a single month. This amounts to a tax bill of more than £100,000 (assuming that the current bands still apply).
Unfortunately, the bad news doesn’t stop there.
What about the capital gains charge?
There is a gain of £5 million (£12 million - £7 million) when Neverland sells the property. Normally, this gain would be taxed at corporate rates, giving a tax charge of £850,000 (assuming a rate of 17% for the year beginning 1 April 2020). However, because the property was subject to ATED, part of the gain is taxed at the higher 28% rate.
|
Gain |
Tax |
Unadjusted
gain |
£5 million |
|
Adjusted
for ATED: (731/1461) x £5 million @ 28% |
£2.5 million |
£700,000 |
Balance
of gain at corporate rates @ 17% |
£2.5 million |
£425,000 |
Total tax |
|
£1,125,000 |
Effective
tax rate |
|
22.5% |
The ATED rules are quite draconian in this regard. When (Note: For the ATED gain, adjust the whole gain by the fraction 731/1461, where the number of days’ subject to the ATED charge is 731 and the total number of days when the property was owned by the company is 1,461).
Practical Tip: Choose your tenants wisely!
If you’re looking to invest in residential property and want to use a company, ATED will not normally be an issue, provided the relevant relief forms are submitted in time. However, you need to be careful about who you choose as tenants. This is particularly relevant in the context of owner- managed or family run businesses. So, don’t live in the property yourself, and if a family member asks you, just politely and firmly point them in the direction of that nice little hotel down the road!