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Property Uncategorized

ATED

The 5 year valuation rule trap

The Annual Tax on Enveloped Dwellings (ATED) contains a trap which can blow-up in your client’s face: the five-year valuation rule.

When a residential property is held through a company (or other non-natural person eg a trust) it must be valued on acquisition to determine whether it is worth over £500,000, and thus may be subject to ATED. However, the property must also be revalued every five years after acquisition, with the valuation undertaken on 1 April in 2012, 2017, 2022, 2027 etc.

The new valuation takes effect for the ATED reporting year starting on the following 1 April. Thus, the ATED return and payment for 2023/24 is based on the open market value of the property as assessed at 1 April 2022.

HMRC is writing to taxpayers who are currently paying ATED, to remind them to revalue their properties at 1 April 2022 using an open-market value.

This could result in the property moving up a valuation band for 2023/24, say from the £500,000 to £1m band, into the £1m to £2m band. Although the ATED charges for 2023/24 have not been announced yet, moving up a band will at least double the amount of ATED due, which needs to be budgeted for.

The bigger trap is when the property becomes subject to ATED for the first time, as the property value has exceeded £500,000. Even if the property is exempt from ATED, because it is commercially let to people unconnected with the company owners, an ATED relief return must be submitted by 30 April within the year. There are a number of other situations which give full relief from the ATED charge.

Failure to submit an ATED return on time will result in automatic late filing penalties. Also, failure to pay the right amount of ATED charge on time will generate a late payment penalty and an interest charge.

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Share scheme arrangements Uncategorized

Company share option scheme

Award value to double

Employers can encourage their employees to take a stake in the company they work for by providing them with share options. There are a number of approved share option schemes, which can allow employees to receive share options without being taxed on that value as a benefit in kind.

The two most popular share option schemes are the Enterprise Management Incentives (EMI) and the Company Share Option Plan (CSOP).

The value of shares that employees can be awarded under the CSOP will be doubled from a market value of £30,000 to £60,000, for any new options granted from 6 April 2023. The condition that limits the types of shares eligible for inclusion within the CSOP scheme will also be removed to better align the scheme rules with the EMI, from the same date.

Another employee share scheme: Save As You Earn (SAYE) allows employees to earn interest on their savings while the funds are waiting to be invested in shares. However, since December 2014 that interest rate has been set at 0%. The mechanism for applying interest to the employees’ savings is being reviewed.

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Enterprise Investment Schemes Uncategorized

Venture Capital Schemes

Following a consultation this Spring the Government has decided to overrule the sunset clauses for both the Enterprise Investment Scheme (EIS) and the Venture Capital Trust (VCT) scheme, which were both due to end by 6 April 2025.

The similar Seed Enterprise Investment Scheme (SEIS), designed for early stage trading companies, will be expanded.

The amount each investor can subscribe for new shares under the SEIS will be doubled to £200,000 per year from 6 April 2023. This would give an investor, who puts up the maximum amount in one year, £100,000 of income tax relief. The shares acquired are also free of CGT if they are held for at least three years and the income tax relief is not withdrawn.

SEIS also offers CGT reinvestment relief at the rate of 50% of the amount of gain reinvested in SEIS shares, if the investment is made within the same tax year as the gain was realised. However, the gain must be real gain, not a deemed gain, or a gain which has been held-over or deferred. To benefit from reinvestment relief the taxpayer must also claim the income tax relief on the subscription for the shares.

The cap on the amount for the company can raise under the SEIS will also be increased from £150,000 to £250,000. The gross assets cap for companies using the SEIS will be also be increased from £200,000 to £350,000.

Currently such companies must be within two years of starting their trade when they receive funds under SEIS, this age limit will be extended to three years.

For more information please contact us.

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Capital Gains Tax Uncategorized

CGT offset problems

Since 6 April 2020 gains made on the disposal of UK residential property have to be reported and the CGT paid within 30 days, using the UK Property Reporting Service. This online service doesn’t link into the annual self-assessment reporting system.

However, HMRC had assured the tax and accounting professional bodies that any under or over ‘payments on account’ of CGT would be sorted out in the taxpayer’s annual self-assessment. It appears that is not the case.

All taxable gains must be reported on the SA form whether or not they have also been reported through the UK Property Reporting Service. It is only at this stage that taxpayer’s total income for the year is determined and thus how much of the gains fall into the basic and higher rate tax bands. The incidence of capital losses can also reduce the final amount of CGT due compared to what was paid on account.

The SA computation will not automatically off-set any overpaid CGT against income tax and NIC due, or prompt HMRC to refund the excess CGT. In this situation the taxpayer has a choice of how to secure the refund of CGT:

  1. Amend the UK Property Disposals return and claim a tax refund via that service, if an amendment to that particular calculation permitted under FA2019, Sch 2, para 15.
  2. Complete the SA return using the original figures on the UK Property Disposal return, then view and print the tax calculation.

Note, action 1) should not be undertaken once the SA return for the year has been submitted.

If route 2) is taken and the total of income tax, CGT and NIC due is more than the amount of CGT overpaid, the taxpayer can pay the balance of tax by 31 January 2022. However, the taxpayer or his agent must first contact HMRC on 0300 200 3300 and ask for a manual adjustment to set off the amount of CGT overpaid against the other taxes due. An alternative solution is to pay all the income tax, NIC and CGT shown as due on the SA computation and contact HMRC for a repayment of any overpaid CGT.

This manual adjustment by HMRC is a temporary solution which creates more work for taxpayers, their tax advisers and HMRC. It is hoped that an automated solution will be provided in due course.

Note that non-resident taxpayers must report and pay the tax on gains from all UK commercial and residential properties, so the problem is much bigger for non-resident individuals.

See the advice from the CIOT, and an example, here