Satwaki Chanda examines how to claim relief for the ATED charge if you have a buy-to-let residential property and highlights some traps that landlords may fall into.
Most corporate landlords are highly unlikely to fall within the ATED charge, as there is a specific relief available for residential properties which are let out on a commercial basis with a view to a profit (FA 2013, s 132). The relief is also available in respect of void periods as long as steps are being taken to let the property out again or to sell, demolish or convert the property without undue delay, subject to the following conditions (FA 2013, ss 133(1)(b), 134):
• If the property is being demolished with a view to replacing it with another dwelling, there must be an intention that the use of the new property will also qualify for ATED relief. There is no requirement to lease the new property and claim the same relief that applied to the old. For example, the company may sell the building on completion and claim relief as a property developer (FA 2013, s 138);
• The same rule applies if the property is converted to another dwelling – there must be an intention for the new dwelling to be used in a way that also qualifies for ATED relief;
• However, no conditions attach to selling the property or demolishing it completely without replacing it, or converting the property to non-residential use, provided that this is done without undue delay.
It is a further condition for the relief to apply that the property is not occupied by a ‘non-qualifying individual’, whether for rent or otherwise. A non-qualifying individual is one who is linked to the company in accordance with the legislation (FA 2013, ss 135, 136). This is particularly relevant in the context of owner-managed or family-run businesses. A non-qualifying individual includes (FA 2013, s 136(1)):
• Any individual who is connected to the corporate landlord, such as a controlling shareholder (s 136(1)(b));
• The controlling shareholder’s spouse or civil partner, as well as their relatives, and any spouse or civil partner of those relatives (s 136(1)(e), (g), (h));
• The controlling shareholder’s relatives as well as their respective spouses or civil partners (s 136(1)(f)).
See FA 2013, s 172(1); CTA 2010, s 1122.
For these purposes, a relative is either a brother, sister, ancestor or lineal descendant (FA 2013, s 136(7)).
Special care needs to be taken in respect of void periods, including the situation where the business has come to an end and any of the properties are empty.
For example, permitting a relative to have use of the property while looking for a new qualifying tenant, or preparing the property for sale, demolition or conversion can have particularly adverse consequences:
• No relief is available in respect of the period for which the property is occupied. However, for the current and subsequent three chargeable periods, ATED relief only becomes available again when the property is let out to a tenant that is not linked to the company under the rules for non-qualifying individuals. It is not possible to argue that any prior period to finding the new tenant qualifies for relief on the basis that steps were being taken to fill the vacancy. This is the case even where the relative has vacated the property, leaving it void for a period before the new tenant is found (FA 2013, ss 135(2), (8));
• Any period which falls within the current or preceding chargeable ATED period no longer qualifies for relief on the basis that steps were being taken to let it out, sell, demolish or convert the building. Accordingly, any relief previously given for these periods is withdrawn. However, this does not affect any previous relief given on the basis that the property was occupied by an unconnected tenant (FA 2013, ss 135(4), (5)).
Example – ATED relief withdrawn for property made available to relatives
Molly Blackett is the sole shareholder of Beckfoot Ltd, a company that owns various properties around the Lake District area, which it leases out to tenants. The company owns Beckfoot, which used to be Molly’s childhood home but which, for the last few years, has been leased to Professor Callum. The property is worth £3 million, and therefore falls within the ATED regime. However, relief is available on the basis that the company rents out the property on a commercial basis.
Professor Callum vacates Beckfoot on 31 May 2016. The property is advertised as available to let, but no new tenants appear. On 1 July 2016, Molly’s two daughters. Nancy and Peggy move in to Beckfoot to stay for the summer holidays, leaving to return to university on 30 September 2016. The property continues to remain empty until 1 May 2017, when a new tenant, Dr Dudgeon signs a lease and moves in.
Molly Blackett is connected to Beckfoot Ltd on the basis that she is the sole shareholder and therefore controls the company (FA 2013, s 172(1); CTA 2010, s 1122(3)).
Nancy and Peggy are her relatives, being lineal descendants (FA 2013, s 136(7)). They are therefore both non-qualifying individuals, being the relatives of a person connected to the company (FA 2013, s 136(1)(f)). Accordingly, no relief is available during their occupation for the three-month period 1 July 2016 to 30 September 2016.
Unfortunately, the impact of allowing Nancy and Peggy the use of the property is not limited to the length of their visit. Relief for periods both before and after their stay is now at risk.
Time period Occupier
1 April 2015 - 31 March 2016 1 April 2015 – 31 March 2016 Professor Callum (tenant)
1 April 2016 – 31 March 2017 1 April 2016 – 31 May 2016 Professor Callum (tenant)
1 June 2016 – 30 June 2016 Property empty
1 July 2016 – 30 September 2016 Nancy and Peggy Blackett (rent free)
1 October 2016 – 31 March 2017 Property empty
1 April 2017 – 31 March 2018 1 April 2017 – 30 April 2017 Property empty
1 May 2017 – 31 March 2018 Dr Dudgeon (tenant)
No relief is available in respect of the property until Dr Dudgeon - the new tenant - moves in on 1 May 2017. This is the case in spite of the fact that the property was being advertised to let in the preceding months when it was empty. Relief would have normally been available for the 1 October 2016 to 30 April 2017 period, as the property is being advertised for sale. However, this is disallowed due to Nancy and Peggy using the property as their holiday home during the summer.
Note that the period for which relief is disallowed is not restricted to the chargeable period in which the ‘disqualifying event’ occurred (1 April 2016 to 31 March 2017). It extends to any period during the following three chargeable periods until such time as a new tenant is found.
Relief would also have been available for the empty month of June 2016, shortly after Professor Callum vacated Beckfoot and when the property was first advertised to let. However, relief for this period is also disallowed due to Nancy and Peggy’s subsequent visit.
In order to claim the relief, it is necessary to file a relief declaration return (FA 2013, s 159A and http://tinyurl.com/ATED-relief-return) which must state both:
• The fact that it is a relief declaration return; and
• The type of relief which is being claimed.
The return may be made in respect of more than one property, and there is no requirement to specify the details of each property on the claim form (FA 2013, s 159A(2), (3)). The return will also cover any additional properties that are acquired in the same chargeable period to which the return relates – there is no requirement for a separate filing (FA 2013, s 159A(6), (7)).
Even though no tax is payable on a successful claim for relief, there is still a requirement to file the return by the relevant dates applicable to a standard ATED return. Failure to do so may result in penalties applying (FA 2013, s 159A(10)). Note also that it is necessary to submit a form each year for the relevant chargeable period beginning on the 1 April.
This is an extract from Buy-to-let Property Tax Handbook (Chapter 10: Corporate landlords) (Bloomsbury Professional). For more information, visit: http://www.bloomsburyprofessional.com