Farmers face increased taxes on farm dwellings

More farmers could face hefty taxes on their homes and other residential properties from next tax year when the threshold for annual taxes on enveloped dwellings (ATED) drops, Savills has warned.

ATED replaced annual residential property tax on 1 April 2013 and is a tax payable by companies that own high-value residential property. This could include farming businesses where dwellings are owned by the business rather than the occupants themselves.

Farming businesses may qualify for a number of exemptions from the tax, but will still need to submit an ATED form and prove their exemption, said Charles Seligman, associate director at Savills.

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Currently, properties valued at £2m upwards are subject to this tax, but from the 2015-16 tax year, the threshold will reduce to £1m. Companies that own residential properties valued at between £1m and £2m will have to pay £7,000 unless they qualify for exemptions.

The threshold will lower again in the 2016-17 tax year to include residential properties valued at between £500,000 and £1m, facing an ATED bill of £3,500.

ATED is payable for each property over the threshold, rather than on the combined value of properties in a business. The value of a property will be taken from April 2012.

Any company owning residential properties in the UK will need to complete a form and return it to HMRC with any payment by the 30 April of the new tax year, even if they do not reach the threshold. Farming businesses may qualify for a number of exemptions from the tax, said Mr Seligman. These include where the property is lived in by an active farmer or farmworker, or where the property is commercially let or is for sale as part of a property development business. Where farm buildings are in the process of being converted to residential dwellings, Mr Seligman suggests seeking advice, as the parameters of the tax are still a little grey.

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Properties lived in by family members who are not active workers in the farming business will be liable for the tax. Farmers may therefore wish to restructure their businesses and either take the property out of the business, gift it to that family member, or charge the occupier rent.

When submitting their forms, farmers should try to include as much evidence as possible to show they qualify for exemptions, said Mr Seligman, such as a property valuation and rental income.

For more information, visit the HMRC website