HMRC have recently commenced a One to Many (“OTM”) letter campaign directed at offshore corporates who owned UK residential property valued at over £500,000 and reported consecutive losses from their UK rental property business for the tax years from 2017/18 to 2019/20.
The purpose of HMRC’s latest OTM campaign is two-fold:
- Where offshore companies with relevant properties have not previously filed ATED returns – To make them aware of their annual obligations in this regard and prompt them to take action to correct their historic position.
- Where offshore companies with relevant properties have previously filed ATED returns to claim Property Business Rental Relief – To make them aware that this relief is only available for rental business undertaken on a commercial basis with a view to profit and prompt them to take action to correct their historic claims if this is not the case.
To bring readers up to speed, the Annual Tax on Enveloped Dwellings (“ATED”) applies to non-natural persons (i.e., companies) that own UK residential property, in respect of each self-contained dwelling with a market value over £500,000. For each such dwelling, the company must file a return every year and potentially pay a tax charge, the annual equivalent of which from 2017/18 to 2025/26 will range from £3,500 – £292,350 per year per dwelling.
For current years, it is necessary to look at the market value as at 1 April 2022 (or when acquired if later) when determining whether the £500,000 threshold has been exceeded. However for the offshore companies that this latest OTM campaign is targeting, it may be necessary to determine the market value of each self-contained dwelling as far back as 1 April 2012 to determine whether an obligation arises for 2017/18, and as far back as 1 April 2017 for 2018/19 and 2019/20.
There are various reliefs from the charge in respect of each day where the relevant conditions are met (e.g., Property Business Rental Relief where the property is let to third parties on commercial terms). A full list of the reliefs available can be found at Annual Tax on Enveloped Dwellings: reliefs and exemptions – GOV.UK. However, a company with relevant property valued at other £500,000 is still required to submit an annual return to claim these reliefs.
Each chargeable year for ATED runs from 1 April to 31 March and the deadline for submitting the ATED return and paying the associated tax is 30 days following the first day during the year that the company holds the relevant property. Where the company already holds the property at the beginning of the chargeable period then the deadline is 30 April following the beginning of the chargeable year (i.e., 30 April 2025 for 2025/26). If the company acquires the property partway through the chargeable year then the deadline is 30 days following acquisition (or 90 days if the company has constructed the property themselves).
The penalties for late filing of the ATED return and late payment of the ATED charge for a given chargeable year are substantial and can be summarised as follows:
Late submission of ATED returns
| 1 day late | £100 |
| 3 months late | A further £10 per day up to a maximum of 90 days |
| 6 months late | A further £300 or 5% of tax due if greater |
| 12 month late | A further £300 or 5% of tax due if greater |
Late payment of ATED charge
(interest will apply in addition to the penalties below)
| 31 days late | 5% of tax unpaid |
| 6 months late | A further 5% of tax that remains unpaid |
| 12 month late | A further 5% of tax that remains unpaid |
Furthermore, where for example, an offshore company fails to provide any information or documents requested, or take action to correct their historic position following receipt of the OTM letter, then HMRC may seek to impose further penalties for the deliberate withholding of information. Therefore if you are one of the offshore companies that has recently received an OTM letter, or if you have concerns that you may have historic obligations to fulfil in respect of ATED, then it is imperative that you take the necessary corrective action as soon as possible.
Depending on the specific circumstances of the case, there may be grounds to appeal any penalties charged where the company has a reasonable excuse for the failure.
Please do not hesitate to contact us if you are concerned about historic ATED obligations, or if you would like advice and support with correcting your companies historic position and support with ongoing ATED compliance going forward.
