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Annual tax on enveloped dwellings – a pitfall for the farming community?

Since 1 April 2013, an annual charge has been levied on residential property worth more than £2 million owned by “non-natural persons”, known as the annual tax on enveloped dwellings (“ATED”). In the 2014 Budget, the Chancellor extended this charge to include:

  • properties worth over £1 million from 1 April 2015; and
  • properties worth over £500,000 from 1 April 2016.

Properties are assessed using their market value either on 1 April 2012 or on the date the property was acquired, if later. Properties will be revalued every 5 years.

For the purposes of the regime a “non-natural person” includes limited companies and partnerships where one of the partners is a corporate partner.

The farming community has reacted over the years to the various announcements from the Chancellor, restructuring where necessary to ensure they take advantage of any relevant reliefs or exemptions. If you are a farming business that has structured itself either as a limited company or as a partnership with a corporate partner, then this new regime is something that you will need to look at closely.

There are provisions for reliefs and exemptions for the farming community. Farmhouses and cottages on the farm are most likely to be caught, particularly in the future as the threshold comes down. Depending on the circumstances, there are reliefs available for property rental businesses (broadly, where a residential property is held for the purposes of a property rental business run on a commercial basis) and farmhouses (broadly, where the farmhouse is occupied for the purposes of a farming trade). 

However, to benefit from a relief, you must file an “ATED return”. If you do not, you will be liable for the tax and subject to the normal rules governing late filing of tax returns and late payment of specified taxes.

For further information about ATED contact Rupert Burchett in our agriculture and estates department on 01242 514000.