Annual Residential Property Tax

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The Annual Residential Property Tax (ARPT) now known as the Annual Tax on Enveloped Dwellings (ATED) is a tax payable by companies that own high value residential property (a ‘dwelling’). It is due to start on 1 April 2013 and will be payable each year. These notes are based on draft legislation, which is expected to be included in the Finance Act 2013

Who pays?

You’ll need to complete an Annual Residential Property Tax Return and pay ARPT if all of the following apply:

  • it’s a dwelling (see below for definition)

  • it’s in the UK

  • it was valued at £2 million or more on 1 April 2012, or at acquisition if later

  • it’s owned, completely or partly,

    • A company or other corporate body. However, a company that owns property in its capacity as a trustee of a settlement is not included in ARPT although the beneficiary maybe. If a company holds property as a trustee of a bare trust, it’s the person who beneficially owns the property who may be within ARPT

    • A collective investment vehicle (such as a unit trust or an open ended investment company)

    • A partnership which includes one, or more, of the above

If your dwelling falls within ARPT, and even if you can claim a relief that will reduce the ARPT to nil, you must still complete and send a return. The return for the 12 month ARPT period beginning on 1 April 2013 can be completed and sent online between 1 August and 1 October 2013 (but it must be received by 1 October 2013).

What is a dwelling/residential property?

ARPT applies to residential properties (‘dwellings’) that are physically located in theUK.

A dwelling may be all or part of a residential or mixed-use property.

Sometimes a dwelling is part of a larger, mixed-use property that has parts not used for residential purposes. Only the residential part would have ARPT payable on it. The residential part will need to be valued to work out which ARPT band it falls into.

A dwelling includes gardens and grounds and any building within them, unless that building is being used for a purpose covered by a relief. You can find out more about that in the ‘reliefs’ part of this guide.

If a property consists of a number of self-contained flats, each flat will usually be valued separately.

If there’s more than one dwelling in a property and they’re owned by a company or person connected with the company, they are added together and looked at as a single dwelling where there is internal access between the two. Two dwellings in adjoining buildings with internal access between them are also treated as one dwelling for ARPT.

Where companies and individuals connected to the company own multiple interests in a dwelling, these will be added together for ARPT purposes. This could be shareholders or their relatives, or beneficiaries of settlements where the dwelling is owned by a company that’s owned by the trustees. For example, where the freehold interest is owned by one person (perhaps the company) and a leasehold interest is owned by another (perhaps an individual connected to the company).

Hotels, guest houses, boarding school accommodation, hospitals, student halls of residence, military accommodation, care homes and prisons are not dwellings, so don’t come under ARPT

If a company owns an historic house that’s open to the public or provides access to the dwelling as part of its services (for example, as a wedding venue) with the intention of being open for at least 28 days per annum it may be able to claim a relief that will reduce its ARPT charge to nil.

The company’s activities in the historic house must be commercial and with a profit-seeking motive, even if that profit doesn’t cover the full costs of the house. Also, access must be to a significant part of the property.

This will be the case even where a person connected with the owner is in occupation.

HMRC will publish further guidance on the conditions for meeting this relief before July 2013.

If a company owns a farmhouse that carries on a trade of farming commercially and with a profit seeking motive it may be able to claim a relief that will reduce its ARPT charge to nil.

To qualify for this the criteria will include that a ‘qualifying farm worker’ must occupy the property. The relief will be available even where a person connected to the owner occupies the farmhouse.

HMRC will publish more guidance on this relief before July 2013

How much is ARPT?

There are reliefs that could reduce the tax completely but you can only claim them if you complete and send in a return.

The amount of ARPT is worked out using a banding system based on the value of your property. You need to find out which band the value of your property falls into: –

Property Value Annual Tax 2012-13
£2 million to £5 million £15,000
£5 million to £10 million £35,000
£10 million to £20 million £70,000
£20 million and over £140,000

If you only own the dwelling for part of a year, or you change how you use the property so that it moves into or out of ARPT, then ARPT applies on a proportionate basis.

For ARPT the value of the dwelling to be used is its value:

  • On 1 April 2012, if you owned your interest in the property at that date. This date is to make sure that people who will need to pay ARPT can work out the right value ahead of the first period that it’s due
  • When you bought or acquired it, if that is a later date
  • At the date of entry on the Council Tax Valuation Lists (or Northern Ireland Valuation List) or when it’s occupied, whichever is the earliest, if the dwelling is a new property or an existing building that’s been altered so that it is to be a dwelling

The valuation figure will be used for the first 5 ARPT return periods beginning 1 April 2013 will be the valuation at 1 April 2012 – or when you bought or acquired it, if later. All properties within ARPT need to be revalued again in five years time, which will be 1 April 2017 (to cover the ARPT returns for the five year periods starting on 1 April 2018).

You need to self assess the value of the property. You can do this yourself, or use a professional valuer. The valuation will be reported on the ARPT return.

Valuations must be on an open-market willing buyer, willing seller basis. The value must be a specific price; an ‘in the range of’ valuation is not acceptable, for example £2,135,000, not ‘£2,100,000 to £2,150,000’.

A valuation at 1 April 2012 will decide which ARPT band the property will fall into for five years. This could change if the property is developed or falls outside of ARPT completely, or moves back in again (for example, it becomes a non-residential property and then residential again).

If HM Revenue & Customs (HMRC) challenge a valuation and find that it’s wrong, the person responsible for paying ARPT may have to pay penalties as well as the increased ARPT payable, plus interest for late payment.

Pre-return banding check

FROM 1st June 2013 (2 months after ARPT becomes relevant) you will be able to ask HMRC to confirm the banding they will accept the property is within, by sending your valuation for a Pre-Return Banding Check (PRBC). Please note: a PRBC will only be available to those who reasonably believe that their property valuation falls within a 10 per cent variance of a banding threshold.

HMRC will only confirm that they agree to the banding proposed and not the specific valuation of the property. That confirmation must not be used for any other purposes.

In some cases, the inside of the building might need to be examined as part of the check. HMRC will be able to enquire into returns and challenge valuations, but they will normally be able to accept valuations prepared by a professional property valuer.

Further information on PRBC can be found at http://www.hmrc.gov.uk/arpt/pre-return-banding-checks.htm

Reliefs

There are reliefs that might lead to you not having to pay any ARPT. You can only claim these by completing and sending an ARPT return.

A dwelling might get relief from ARPT if it is:

  • Let to a third party on a commercial basis and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner

  • Held for charitable purposes

  • Open to the public for at least 28 days per annum

  • Part of a property trading business and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner

  • For the use of employees of the company, for the company’s commercial business and where the employee does not have an interest (directly or indirectly) in the company of more than 5 per cent. The employee’s duties must not include services for any present or future occupation of the property by someone connected with the company

  • Farmhouses, if they are occupied by the farmer who farms the associated farmland full time and the farmhouse is of an appropriate character

Also, a dwelling held as part of a commercial property development business can get relief but it must meet the following conditions:

  • the property is bought or acquired as part of a property development business

  • the property was purchased with the intention to re-develop and sell it on

  • the property is not at any time occupied by anyone connected with the owner

If part of a property is occupied as a dwelling in connection with running the property as a commercial business open to the public, the whole property is treated as one dwelling and any relief will apply to the whole property.