April is ATED filing month –
2017/2018 ATED tax returns must be filed and any ATED tax paid by 30 April at
the latest. Even if no ATED is due,
because a relief from ATED applies, that relief still needs to be claimed on an
ATED tax return, which must be submitted by the end April deadline just the same.ATED applies to companies owning
UK let residential property too.
However, a 100% relief from ATED is available if the company is running
a property rental business and the relief is claimed each year.
One crucial trap to guard against
is occupation of the company’s property by a ‘non-qualifying individual’. These include people who are ‘connected to’
the company, in the very wide sense conferred on that phrase by s.1122
Corporation Taxes Act 2010. For example,
the settlor of a trust which owns an interest in the corporate entity which
owns the property will count as a ‘non-qualifying individual, as will the
settlor’s relatives – meaning siblings, and either ancestral or lineal
descendants – and even their respective spouses and their families!
The non-qualifying individual has
to be ‘permitted to occupy’, according to the ATED legislation, which may give
an escape route if the directors of the company were not aware of the
occupation and therefore could not have given permission, implied or
express. Unfortunately there is no
definition of what ‘permitted to occupy’ means, either in the legislation or in
HMRC’s ATED Technical Guidance. However,
in the content of other taxes, HMRC regards use of a property as occupation if
the person who does stay at the property or uses it has a right of access to it
and does keep belongings there. No
guidance is also given on how long a period of occupation is needed in order to
trigger these provisions. In an example
given in the Technical Guidance, a month of occupation was long enough but
there is no discussion of whether a week or even a few days would have been
problematic. Therefore, it’s best to try
to avoid these murky waters if possible.
It is relatively easy for
companies to find themselves in trouble over non-qualifying occupation. The family member who stayed a few nights in
the company’s London flat, in the void period between lettings, is a classic
situation but unfortunately this can lead to an unhappy outcome. The consequences of non-qualifying occupation
can be severe:
- ATED relief is denied for the whole of the ATED tax year in which the non-qualifying occupation takes place, unless there was a qualifying tenant renting the property as part of a property rental business prior to the non-qualifying occupation (in which case relief will be allowed for the period of ‘qualifying’ occupation).
- Relief is also denied for up to the next three ATED tax years, until such time as there is ‘qualifying occupation’.
- ATED relief is withdrawn for the previous ATED tax year if, in fact, there was no qualifying occupation during that tax year. (This could be the case if the company was taking steps to rent out the property, such as alterations or redecoration, for which ATED relief is available if the steps are taken without undue delay).
