ATED revaluation means many unhappy returns in 2018-19

Fri 09 Mar 2018

The annual tax on enveloped dwellings (ATED) has been with us for five years and the first automatic revaluation is now about to take effect: for 2018/19 ATED on properties already subject to the tax will be charged on the basis of a property’s value as on 1 April 2017unless the property was acquired at a later date.

An enveloped dwelling is a UK dwelling that is held within a corporate-based structure (including certain partnerships and collective investment vehicles) and occupied personally by an individual participator in the vehicle.

This revaluation means there is likely to be an increase in the number of properties subject to ATED: there are unlikely to be as many properties that have fallen in value as have risen.

The system will not accept 2018-19 returns until 1 April 2018 but the submission deadline is 30 April which is also the date when the tax must be paid, so there isn’t a lot of time in which to obtain the information necessary.

How Mazars can help

There are a number of reliefs from ATED but they must be claimed.

Returns can only be submitted online.

The property-owning vehicle must be registered with HMRC before it files its return.

Mazars have been filing ATED returns and advising on this topic since the tax was introduced and can assist you with compliance.

ATED revaluation traps

The five-year revaluation cycle does not run from the date of acquisition of a property but from 1 April 2013, when ATED was introduced. So for example, a property acquired in 2016/17 will have been valued for that year and 2017/18 on the basis of its acquisition cost but for 2018/19 it must be revalued to its market value as on 1 April 2017 (ATED revaluations work one year in arrears to allow time for valuations to be obtained).

Part disposals

A revaluation is required if part of the dwelling is disposed of and the revised valuation applies from the date of part disposal until the next revaluation date.

So if part of the garden of an ATED dwelling is sold for any reason, e.g. as a building plot for a new dwelling, the remaining property must be revalued.

One’s first instinct on seeing this would be to expect that the part disposal of the property would result in a reduction in value, meaning that the property might fall into a lower ATED charge band: good news.

But a small part disposal part way through the revaluation cycle could also produce an increased ATED charge if the increase in value of the dwelling as a whole had increased so substantially that the value of the retained part was higher than the value of the entire dwelling for ATED had been, based on the previous valuation.

New builds and reconstructed properties

In the case of a newly constructed dwelling or a  property not originally constructed as a dwelling which has been altered to create a new dwelling, the valuation date is the earlier of the date on which the dwelling was:

·         first occupied; or

·         treated as coming into existence for Council Tax (or in Northern Ireland domestic rating) purposes.

Note the use of the phrase “to create a new dwelling”: if an existing dwelling is altered, or even extended on the same plot of land, no new dwelling is created unless the “old dwelling” ceased to be occupied and was unfit for occupation during the rebuilding work; this will usually only be the case if the old dwelling is demolished and replaced but any case involving substantial alteration needs to be examined carefully to be sure that returns are correct. It may be that there are two dwellings in a year and so two returns are required: one to amend the original return; the other in respect of the new dwelling.

Discovery of past changes

If it is discovered that a change requiring a revaluation has occurred, an amended return may be necessary and if so this must be made as soon as possible to avoid penalty.

If the revaluation is prompted by a part disposal and the property’s value remains in the same band, no amended return is required.

If the revaluation on part disposal takes the property into a lower band there would be no penalty for failure to amend the return to show a reduced liability. The client may consider that the cost and hassle of amending the return would not be justified for tax the saving achievable.

ATED rate bands