Many landlords have transferred their residential property portfolios into companies that they control, to avoid the restriction on interest deductions which came into force on 6 April 2017. If any of those residential properties were worth over £500,000, on the day the company completed the purchase, an ATED liability or reporting requirement arises.
The first ATED charge is payable within 30 days of the completion date, but in most cases the tax won’t be due as a relief will apply. For example, where the property is let on a commercial basis to tenants who are not connected to the company, the relief for commercial letting can be claimed. However, that relief must be claimed on the ATED relief declaration return, which is also due within 30 days of the completion date.
As we explained in our newsletter on 8 December 2016, the penalties for late ATED returns, including ATED relief declarations, are set at the same levels as for self-assessment tax returns. Thus, one day late creates £100 penalty, and a delay of six months can mean the penalties rack up to £1300 per form.
The ATED forms must be submitted annually for each property, although one relief declaration can apply across a portfolio of properties, where the same relief (eg commercial letting) applies to all the properties. The annual declaration is due by 30 April within the chargeable year, so by 30 April 2018 for 2018/19.
As the relief is claimed in advance, the property owner, or us as your adviser, must be careful to report to HMRC if the conditions for the relief are broken. For example, where the property is used by an individual connected to the company, such as the main shareholder, or one of their close relatives. In that case an amended ATED return must be submitted within 30 days of the start of the next chargeable period, so by 30 April 2018 for a condition broken in 2017/18.
From 2014/15 to 2017/18 the ATED returns could be submitted in paper form, or online. The online return has been replaced by a new ATED online service, which will be the only way to submit ATED returns from 1 April 2018.
Written by the Tax Advice Network