Valuations for tax (ATED/CGT/SDLT)
As many will now be aware, changes to Non-Resident Capital Gains Tax (NRCGT) came into effect this April. Whilst previously NRCGT was only applicable to residential property, it is now applicable to direct disposals of UK commercial property.
This also extends to indirect disposals through sales of interests in property-rich companies, property unit trusts and partnerships. A non-resident investor holding a 25% or greater interest in an entity that derives 75% or more of its gross asset value from UK real estate will now be caught.
The tax will apply to
- Foreign Companies
- Non-UK resident individuals
- Overseas Trusts
- Jersey Property Unit Trust
- Exemptions apply to
- Sovereign Wealth Funds
- Pension Funds
Foreign companies will be charged at the corporation tax rate, which is currently 19% and will fall to 15% by April 2020. Private individuals will be taxed at the normal CGT rate of 20% for commercial property and 28% for residential property. Anti-avoidance rules have been put in place to prevent these groups from avoiding the tax by restructuring.
Why get a ATED/ARPT Valuation?
Companies that own residential property in the UK are subject to the Annual Tax on Enveloped Dwellings (ATED). The valuation date used for this tax is 1st April 2012 or the acquisition date, if the property was acquired later. The valuation figure on 1st April 2012 will be used for 5 years of tax return periods commencing 1st April 2013. The property will have to be valued again in 2017. Normally, the return must be submitted by 30th April each year. Late returns and late payments also attract penalties and interest. Please note that where a property is jointly owned, all owners are responsible for ensuring the returns and payments are submitted. It is important to submit an accurate figure to HMRC as you will have to pay penalties together with any increase in the ATED/ARPT and late payment interest.
Part of this legislation allows the value of the property in question to be ‘rebased’ at either April 1st 2019 (for companies) or April 6th 2019 (for other persons). This means that only gains in value accrued after the relevant date will be chargeable.
If this rebasing valuation hasn’t been carried out already, we would encourage investors to arrange a formal valuation of their properties for the following reasons.
- Firstly, if there is intent to sell a commercial property in the near future, a valuation will be needed prior to disposal and having a valuation close to the base date will be beneficial in any discussion with HMRC.
- In the longer term, the benefit of a valuation report prepared around the base date becomes more enhanced. The report will help where it becomes more difficult to value a property retrospectively. This is because, a valuation document prepared around the base date will carry more weight as evidence of value than one prepared in a few years’ time and will give investors more certainty about their position.
Whilst rebasing valuations can be postponed until the date of sale, this is unlikely to be feasible due to time constraints, reporting requirements (if fair value or deferred taxes need to be reported to investors) and the fact that retrospective valuations are more challenging.
What to do now?
This is a self-assessed tax, and requires property owners that meet the regulations to complete an ATED return. A market value is required on the property to calculate the banding rate. Late returns will attract penalties; 30 days late will incur a fee of 5% of the tax due, and after 3 months there is a daily charge of £10 a day up to £900 maximum, so ensuring a prompt return is crucial
How Anderson, Wilde and Harris can help
As RICS registered Chartered Surveyors we conduct residential property valuations to help companies meet the requirements set out by HMRC. There are various options to consider when faced with ATED, and Anderson, Wilde & Harris can refer you to an adviser for the best option. These include:
- Maintain the structure as it is and pay the ATED
- Apply for relief, or exemption, if applicable
- Consider unwinding into direct ownership, or hold a nominee arrangement
Contact us for a free quote
About Anderson Wilde & Harris
Our people have a wealth of experience and have consulted all types of clients from large developers to private individuals.
We value every client and we ensure that they get the best advice for their situation.
Our expertise is recognised by the Royal Institution of Chartered Surveyors.