HMRC have begun sending out warnings to taxpayers regarding the annual tax on enveloped dwellings (ATED) valuation trap. This ‘trap’ has been found to lead to significant penalties for late payment and filing.
What is an ‘enveloped dwelling?’
An enveloped dwelling is a residential property that is owned or ‘enveloped’ within a corporate wrapper.
If a property fits the criteria of an ‘enveloped dwelling’, it must be valued on acquisition to determine whether it will be subject to the ATED charge.
If it does, an annual ATED return will be required.
The tax was initially introduced in April 2013 and the lowest-value property the charge could apply to was £2m. This was reduced to £1m in April 2015 and is currently at £500k as of April 2016.
All properties which are liable for ATED must be revalued every five years after acquisition. The new property valuation will take effect for the ATED reporting year starting on the following 1st April.
Therefore, the ATED return and payment for 2023/24 would be based on the value of the property as assessed at 1st April 2022.
HMRC have been issuing warnings to those taxpayers who are registered for ATED to make sure they are aware that they must revalue their properties as of 1st April 2022 by using an open-market value.
Furthermore, if a taxpayer has an authorised agent such as an accountant or tax adviser, they will also receive this correspondence.
For instance, if the valuation is within 10% of one of the ATED band boundaries, the taxpayer may request an HMRC free pre-return banding check (PRBC).
However, the taxpayer must know whether an ATED charge is payable for the property and if a relief is not due that would reduce the charge to nil.
If there is no ATED charge due, HMRC will not provide the PRBC.
What if you are not currently liable for ATED?
HMRC are currently only writing to taxpayers regarding the warnings if they are already registered for ATED.
This means that property owners who are not currently liable because their properties were purchased for less than £500k, may not be aware that they could fall into the ATED reporting regime trap once the value of their property increases.
If you are liable for ATED and you fail to submit the required annual return, or ATED relief declaration if you are exempt, you will automatically receive a late-filing penalty.
Even if no ATED is payable, these fines can amount to £1,600 if a return is over six months late.
HMRC will even issue fines at £10 per day for up to 90 days in relation to ATED returns that have been delayed for more than three months.
Furthermore, if you pay the incorrect amount of ATED, this can also result in late-payment penalties as well as an interest charge. Therefore, it is crucial to ensure you know how much you should be paying and when.
How can we help?
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Regardless of whether you’re a developer, investor, or landlord, you need an accountancy firm that can navigate the ins and outs of the industry while providing advice that ensures your business comes out on top.
Contact us today to discuss how we can help you.