Does your farming company own a house?
A new tax, known as Annual Tax on Enveloped Dwellings (or ATED), was introduced in 2013. Its main target, at the time, was to collect additional revenue from taxpayers who had taken advantage of stamp duty savings allowed where a valuable house is bought in a limited company. Originally ATED only affected those houses valued at more than £2million on 1st April 2012 or at subsequent acquisition. Since then the limits have reduced to houses valued at £1million or more (for the 2015/16 tax year) and from April 2016 onwards will apply to houses valued at more than £500k.
Initially ATED wasn’t of great interest to farmers operating their business through a limited company and it was mainly the wealthy city dwellers that were affected. However, with the reduction in thresholds many more houses belonging to farming companies (or belonging to a farming partnership in which a company is a partner) will be caught as a ‘country house’ does not have to be spectacularly grand to be worth more than £500k.
In summary, the proposals are as follows:
• an annual charge of £3,500 where the house is worth more than £500k for 2016/17;
• £7,000 (in 2015/16) where the house is worth more than £1m; and
• £ 23,350 (in 2015/16) where the house is worth more than £2m with further scales beyond.
Fortunately help is at hand for many farming companies as where the house is occupied as a farmhouse or where the house is let out commercially an exemption can apply and no tax is payable. Notwithstanding the exemption, a return to HMRC is still required each year and the exemption is claimed within the submission. Failing to address ATED is not an option even if it results in no tax being payable, penalties can still be levied for non compliance.
To be eligible for the farmhouse exemption the following criteria will need to be met:
• The farmhouse must form a part of the land occupied for the purposes of the trade;
• The farmhouse must be owned by the person carrying on the farming trade;
• The farmhouse must be occupied by a farmworker (the 20 hours test), or a former farmworker, or by the surviving spouse of a former farmworker. In both of the latter situations the house provided must be the same house occupied by the original farmworker; and
• The trade must be carried on commercially with a view to making a profit.
To be eligible for the letting exemption:
• Property must be used in a property rental business as defined within the legislation (Chapter 2 of Part 4, CTA 2009); and
• It must be undertaken on a commercial basis and with view to profit.
There are a number of further exemptions available where a let house is temporarily empty pending changes in tenants or a sale. Detailed guidance is available on this here.
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