Advice on avoiding hefty new tax on farmhouses

More company-owned farmhouses could be hit by a hefty annual tax over the next two years unless their owners apply for relief from the charge.

The Annual Tax on Enveloped Dwellings (ATED) came into effect on 1 April 2013 and is payable by companies owning high value residential property in the UK.

Originally charged on properties worth more than £2m, the threshold reduces to £1m in 2015-16, with a charge of £7,000 applicable to properties worth between £1m and £2m.

Then in 2016-17, the first band of the threshold falls to £500,000-£1m, potentially catching many farmhouses with the annual £3,500 charge.

How to claim relief from the tax

Relief can be claimed where houses are used in a commercial farming business. To be eligible the farmhouse must be attached to the land being farmed by the business.

It must also be occupied by a qualifying farmworker, who is someone with substantial involvement in the day-to-day running of the business, putting in at least 20 hours a week.

The relief is claimed by completing an annual Ated return, which is separate from the annual tax return and which has different filing and payment deadlines.

Don’t open your business to charges

Dan Knight, from the rural team at accountant Old Mill, warns that families could inadvertently open themselves up to the charge.

For example, a charge would be applicable if a non-farming family member occupied a house worth more than the threshold, or if that house was let to another connected party. 

However a commercial letting with a view to a profit may qualify for another type of relief.

Ated also applies to houses part-owned by a company or where they are owned by a partnership which has a company as one of the partners.

Along with a growing trend to farming under a company structure, these so-called mixed partnerships have become increasingly common in farming over the last decade or so.

Where there are partnerships or old-fashioned AHA company tenancies involved these can complicate matters and advice should be taken, warns Mr Knight.

ATED charges for 1 April 2015 to 31 March 2016

Property value Annual chargeable amount 2015 to 2016
More than £1m but not more than £2m £7,000
More than £2m but not more than £5m £23,350
More than £5m but not more than £10m £54,450
More than £10m but not more than £20m £109,050
More than £20m £218,200

From 1 April 2016 a further band will come into effect for properties with a value greater than £500,000 but not more than £1m, with an annual charge of £3,500.

ATED – what you need to know

  • Charged on company-owned houses over a certain value
  • Farmhouses may get relief from the tax if part of a commercial farming business           
  • New band comes into effect for properties valued at £1m to £2m for 2015-16 and worth between £500,000 and £1m from 2016-17
  • Annual Ated return must be made to claim relief, usually by 30 April
  • Farmhouses must be occupied by farmworkers to qualify for relief
  • For 2015-16, returns for properties in the new £1m to £2m band are due by 1 October 2015, with payment due by 31 October 2015
  • Ated is nothing to do with the proposed mansion tax but is a live issue enacted in existing legislation.

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