Property Aide Memoire

ATED (Annual Tax on Enveloped Dwellings)

This is an annual tax payable by companies that own UK residential property valued at more than £500,000.  The property needs to be valued as at 1 April (of a specified year).  The annual charge payable to HM Revenue & Customs is based on the property value e.g. for a property valued between £500,000 and £1 million the annual charge is £3,650.

There are exemptions but the company still needs to be registered for ATED before it can claim the exemption.  The company will be liable for a fine if it has not been registered for ATED within the time limit.

Non UK Resident Company Landlords

Non UK resident companies carrying on a UK property business currently pay income tax on their profits.  With effect from 6 April 2020 they will be liable to pay corporation tax not income tax.

This means that company financial statements will need to be prepared in accordance with UK GAAP (Generally Accepted Accounting Principles).

All non UK resident landlord companies should notify HMRC of their obligation to pay corporation tax no later than three months after the beginning of its first accounting period.

Non Resident Landlord Scheme

If rent is received by a UK property agent on behalf of an overseas landlord then the agent has an obligation to deduct tax at the rate of 20% on that rental income unless the landlord furnishes them with form NRL 1 (for an individual) or form NRL 2 (for a limited company).

What is often forgotten is that if there is no UK property agent and the tenant pays the rent directly to the overseas landlord then it is the tenant’s obligation to deduct this tax.

The tax must be paid quarterly by the UK property agent or tenant to HM Revenue & Customs.

Sale of Properties (Both Residential and Non Residential) Owned by a Non UK Company

When you sell a UK property you must pay corporation tax on the chargeable gain. If you are a non UK company you must:

1. Notify HM Revenue & Customs within 30 days of completion of the conveyance.  If you miss this deadline you will be subject to a late filing penalty and possibly an interest charge as well.
2. Pay the corporation tax due within 30 days of completion of the conveyance.
3. You must complete a separate return and file it with HM Revenue & Customs for each disposal.

Sale of Properties (Both Residential and Non Residential) Owned by a Non Resident Individual

When you sell a UK property you must:

1. Notify HM Revenue & Customs within 30 days of completion of the conveyance.  If you miss this deadline you will be subject to a late filing penalty and possibly an interest charge as well.
2. Pay the capital gains tax due within 30 days of completion of the conveyance.
3. Complete a non resident capital gains tax (NRCGT) return within 30 days of the disposal.

Sale of a Residential Property by a UK Resident Individual

With effect from 6 April 2020 when a residential property is sold capital gains tax (subject to any reliefs) must be paid within 30 days of the completion date. For these purposes ‘sale’ also means gifts of property to relations, trusts, etc.

Prior to 6 April 2020 a UK taxpayer would normally record this transaction on their annual personal tax return and pay the capital gains tax on the following 31 January.

Failure to pay the capital gains tax within 30 days will result in interest and possibly penalties being levied by HM Revenue & Customs. This tax is payable even if the taxpayer knows that they will make a capital loss later in that tax year.

Private Residence Relief

At present if a taxpayer sells a property that has been their principal private residence but has also been rented out to a third party at some period of the taxpayer’s ownership then tax reliefs can be claimed.

These reliefs include a maximum of the last eighteen months of ownership being free of capital gains tax and a letting relief of up to £40,000 (£80,000 if the property is jointly owned).

It is proposed that from 6 April 2020 the letting relief will be removed completely unless the owner is in shared occupancy with the tenant.

The maximum exemption for the last eighteen months of ownership of the property will be reduced to the last nine months.

Indirect Disposals by a Non UK Resident

An indirect disposal occurs when a non resident individual sells shares in a company that derives 75% or more of its gross asset value from UK land and the person making the disposal has an investment of at least 25% in that company which holds UK land as an investment.

The gain on indirect disposals will be calculated using the value of the assets being disposed of, rather than the value of the underlying land in the UK.

Capital Gains Tax

Capital Gains Tax on residential property is levied at the rate of either 28% or 18% depending on the size of the gain and the level of the taxpayer’s taxable income.

Inheritance Tax

HM Revenue & Customs usually require property to be valued following the death of the land owner in order for the Personal Representative to account for any inheritance tax due to HM Revenue & Customs.  HM Revenue & Customs recommends a RICS Red Book valuation when satisfying the requirements of S.160 Inheritance Tax Act 1984.

The date of valuation is the date of death.

In order to ensure that the correct inheritance tax has been paid HM Revenue & Customs’ District Valuer may raise questions on this valuation.