The UK property market has long been seen as a safe place to invest and for non residents the preferred vehicle was generally a company as this provided protection from inheritance tax (but see our article entitled De-enveloping UK Residential Property regarding the potential changes). One of the costs of this protection was the Annual Tax on Enveloped Dwellings (ATED) regime.
The deadline for filing the returns and paying the charge due has now passed and this is an opportune moment to summarise the current position.
At the time the charge was introduced it was in respect of properties valued at over £2m on 1st April 2012 (or the date of purchase if later).
This has been gradually reduced and it now applies to properties valued at over £500,000 at that date.
Each company owning UK residential property has to determine whether it needs to file an ATED return and pay the charge.
There are reliefs available which can reduce the charge to nil, however they need to be claimed on a return.
If a return is submitted late to HMRC substantial penalties can arise unless there is a reasonable excuse as to what caused the delay. Not knowing the rules is not a reasonable excuse!
There are likely to be more companies caught out by these penalties as the properties need to be re-valued as at 1st April 2017 and we suggest the revaluations are carried out sooner rather than later.
There are still good reasons to own properties in companies. If the properties are purchased as investments and are commercially let to third parties the tax on any rental profit will be at a rate of 20% rather than up to 45% if owned by individuals.
The decision needs to be taken in the context of what you are looking to achieve from your investment and it is advisable to seek professional advice as there is no one size fits all solution.
If you would like to talk about structuring your property investment tax efficiently for your needs please contact me for advice.