Mark McLaughlin highlights an instance where claiming tax relief can have unfortunate consequences if the claim is late.
The annual tax on enveloped dwellings (ATED) was introduced in (FA 2013, Pt 3, Schs 33–35) to discourage ‘enveloping’. This broadly involves residential property being owned by a company (or other “non-natural person”) as opposed to an individual directly.
ATED charge
ATED is chargeable when the value of a “single dwelling interest” is above a specified threshold. Originally, the ATED threshold amount was £2m. However, the ATED threshold was progressively reduced to its current level, for properties valued at more than £500,000. The ATED charge increases progressively according to the property value band into which the dwelling falls, starting with an annual charge of £3,800 for properties with a value greater than £500,000 but not more than £1m (for the period 1 April 2022 to 31 March 2023), up to a maximum charge of £244,750 for a property with a value exceeding £20m.
The current ATED thresholds and amounts are shown here: www.gov.uk/guidance/annual-tax-on-enveloped-dwellings-the-basics.
That’s a relief…
However, there are various reliefs and exemptions from ATED. For example, there is a popular relief in respect of a “qualifying property rental business” (i.e., broadly, a property rental business run commercially and with a view to profit).
If the relief is available, it must be claimed by way of a relief declaration return stating the reliefs to which it relates. An online filing facility is available (see: tinyurl.com/HMRC-ATED-OS). ATED returns normally need to be submitted by 30 April each year if the property is within the scope of ATED, on 1 April or within 30 days of acquiring the property if it comes within the scope of ATED after 1 April (NB different rules apply to newly-built property).
Penalties may be charged for the late filing of a return. The penalty regime for failure to make returns etc. in respect of various taxes (FA 2009, Sch 55) also applies to ATED returns, and provides for fixed (£100), daily (£10) and tax-geared penalties, depending on the length of the delay.
Late relief declaration
It might be assumed (incorrectly) that there is no late filing penalty for a relief declaration return where no ATED charge arises. Unfortunately, this is not the case.
For example, in Matrix Rental Ltd v Revenue and Customs [2022] UKFTT 286 (TC), the taxpayer company (MR) purchased a property for £735,000 on 3 July 2018. The intention was to develop the property and provide affordable accommodation for young professionals (i.e., an ATED-relievable activity). The filing date for the ATED relief return for the period to 31 March 2019 was 30 July 2018. An ATED filing was made on 25 February 2019 (i.e. 210 days late). On 29 November 2019, HM Revenue and Customs (HMRC) imposed a penalty of £100, and on 10 January 2020 HMRC imposed a further penalty of £300. MR appealed.
The issues for the First-tier Tribunal (FTT) included whether HMRC was correct to issue the penalties and whether MR had established a reasonable excuse for the defaults which had occurred. The FTT found that the penalties were due and had been calculated correctly. In addition, having considered MR’s submissions and relevant case law (including Perrin v HMRC [2018] UKUT 156 (TCC)), the FTT held that MR did not have a reasonable excuse for the late filing of the ATED relief return. Finally, the FTT concluded that no special circumstances applied which would merit a reduction in penalties.
Practical tip
In the above example of a property rental business, ATED relief is based on “relievable days” (FA 2013, s 133). If a relief declaration return is being made and no ATED charge is considered due, carefully check whether all the days in the chargeable period are relievable ones.
