Some tax enquiry cases…

MANY PROPERTY INVESTORS are increasingly using a limited company to hold properties for the perceived tax advantages. However, there are certain tax traps which the investor needs to be wary of in these situations.

One of these is the Annual Tax on Enveloped Dwellings (“ATED”) charge. The ATED is an annual tax on certain high-value residential properties that are held within an “envelope”, such as company or a partnership with at least one corporate partner.

The annual tax on enveloped dwellings (ATED) was introduced as part of a package of measures aimed at making it less attractive to hold high-value UK residential property indirectly, i.e. through a company etc, in order to avoid or minimise taxes such as stamp duty land tax (SDLT) on a subsequent disposal of the property.

In today’s Shipleys Tax brief we look into the rates and exemptions you need to know if the ATED tax applies to you and how you can avoid the charge.

The annual tax on enveloped dwellings (ATED) was introduced (to) make it less attractive to hold high-value UK residential property indirectly, i.e. through a company etc, in order to avoid or minimise taxes such as stamp duty land tax (SDLT) on a subsequent disposal of the property.

The Charge

The charge may potentially apply where a property in the UK which is valued at more than £500,000 is owned completely or partly by a company, a partnership with at least one corporate partner or a collective investment scheme (such as a unit trust or an open-ended investment company).

The charge is payable annually in advance. Where a property is within the scope of the ATED on 1 April, an ATED return must be made online by 30 April and the tax for the period from 1 April to the following 31 March must be paid by the same date. The table below shows the rates of ATED that applies for the period from 1 April 2022 to 31 March 2023.

Value of property	ATED (2022/23)
More than £500,000 to up to £1 million	£3,800
More than £1 million up to £2 million	£7,700
More than £2 million up to £5 million	£26,050
More than £5 million up to £10 million	£60,900
More than £10 million up to £20 million	£122,250
More than £20 million	£244,750

Letting exemption

You can avoid the tax charge by claiming an exemption.There are a number of exemptions from the ATED charge. One of these is the letting exemption.

The ATED charge does not apply if the property is let on a commercial basis and is not, at any time, occupied (or available for occupation) by anyone connected with the owner.

You can avoid the tax charge by claiming an exemption.There are a number of exemptions from the ATED charge.

Provided that this test is met, relief will be available. The relief must be claimed through HMRC’s ATED online forms service. If the claim reduces the ATED charge to nil (which will be the case if all high-value residential properties owned by the company are let on a commercial basis), a Relief Declaration Return needs to be completed.

Once this form is correctly completed and submitted, the property is exempt from paying the ATED charge.

If you are affected by any of the issues above and would like more information, please call 0114 272 4984 or email info@shipleystax.com.

Please note that Shipleys Tax do not give free advice by email or telephone.

THE NATURE OF a gift is that it is something that is given to some without receiving a payment in return. Consequently, as nothing is received in return it would seem unlikely that making a gift could trigger a tax liability.

However, as we will see in today’s Shipleys Tax brief, in some cases making a gift could land you with tax to pay.

Gift issues

Many make the mistake of thinking that gifting isn’t taxable. Whilst gifts are usually given without receiving a payment, strangely that doesn’t exempt gifts from triggering tax liabilities. There are tax rules that apply to gifting in various circumstances which, unfortunately, can give rise to a capital gains tax liabilities.

Market value

The making of a gift is a “disposal” for capital gains tax purposes. As the disposal is not by way of an arm’s length bargain (i.e., the price in a free market), the disposal proceeds are the market value at the time the gift was made, rather than the amount received by the person making the gift (i.e. nothing). From a capital gains tax perspective, unless the gift is to a spouse and the no gain/no loss rules apply or is exempt from capital gains tax, rather than the donor making a loss equal to the cost of the gift, a gain may be realised instead.

There are tax rules that apply to gifting in various circumstances which, unfortunately, can give rise to a capital gains tax liabilities.

Example

Bella has a painting which her niece has always loved. She purchased the painting many years ago for £100. The artist is currently very popular and the painting is now worth £20,000.

On giving the gift to her niece, Bella is treated as if she had disposed of the painting for its market value of £20,000. Consequently, she makes a capital gain of £19,900. Assuming her annual allowance of £12,300 remains available, she must pay capital gains tax on a gain of £6,800!

Gifts to spouses/civil partners

Transfers between spouses are deemed to be at a value that gives rise to neither a gain nor a loss. If instead of giving the painting to her niece, Bella had given it to her husband Akbar, the deemed consideration would be £100 (the value that creates neither a gain nor a loss) and Akbar would be treated as having acquired the painting for £100. In this situation there is no capital gains tax liability on the gift.

Gifts to a charity

Capital gains tax is not payable on a gift to a charity.

Relief for gifts of business assets

The relief for gifts of business assets allows the capital gains tax that might arise on the gift of a business asset to be deferred by ‘rolling over’ the gain so that the recipients base cost is reduced by the deferred gain. However, while this means that there will be no capital gains tax to pay at the time of the gift, the recipient will realise a larger gain when they dispose of the asset. The relief effectively shifts the liability from the donor to the recipient.

Capital gains tax is not payable on a gift to a charity.

Don’t make the mistake of thinking that gifting isn’t taxable. In some cases, Capital Gains tax can still apply as we have seen above.

If you are affected by any of the issues above and would like more information, please call 0114 272 4984 or email info@shipleystax.com.

Please note that Shipleys Tax do not give free advice by email or telephone.

The UK Chancellor today delivered his much heralded Spring Statement. At Shipleys Tax we look at some of the brief highlights.

Basic rate of income tax to be cut to 19p by 2024

• Basic rate of income tax to be cut from 20% to 19% for the tax year ended 5 April 2024 (to be confirmed)
• The first cut of income tax rates in 16 years

National Insurance threshold to be raised by £3k

• National Insurance threshold raised by £3,000 for both Primary Class 1 and Class 4 NI
• This will further align with income tax thresholds, removing an historic anomaly
• The threshold at which employees and the self-employed will start to pay national insurance contributions will rise from £9,880 to £12,570 a year.
• The increase will be implemented from July this year (2022)
• Employers will benefit too, as the Employment Allowance that offsets Secondary Class 1 NI will increase from £4,000 to £5,000. This will also come into effect from April  2022.
• Most likely to dampen effects of the incoming Health and Social care levy of 1.25%

VAT on energy saving devices to be cut to zero

• VAT will be cut to zero on energy saving devices
• This includes thermal insulation and solar panels, and similar items.
• Fuel duty was also cut by 5p per litre, effective from 6pm on 23 March 2022.
• This cut will last for one year, subject to any extension.

If you are affected by any of the issues above and would like more information, please call 0114 272 4984 or email info@shipleystax.com.

Please note that Shipleys Tax do not give free advice by email or telephone.