Ated - Further Problems For Farming Companies
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Published originally 11 August 2014
trading structure for farms has been given much consideration over the
For various historic reasons some farming operations are owned by a
company which includes some possible ownership of residential property,
possibly a farmhouse. This can result in a multitude of problems, not
Since 1 April
2013, non-natural persons (“NNPs”) holding UK residential property that
valued at more than £2 million on 1 April 2012 have been liable to pay
annual tax on enveloped dwellings (“ATED”) and NNPs buying residential
of that value have had to pay SDLT at 15% on the price of the dwelling.
these tax changes were introduced as part of a series of measures in
Budget with the aim of discouraging the ownership of UK residential
through “corporate envelopes”.
At the same
time, the charge to capital gains tax (“CGT”) was extended to NNPs that
within the scope of ATED for disposals of high value residential
Before this measure, companies would have paid corporation tax (with
rates of 20% or 21%) on chargeable gains rather than the normal CGT
ATED “casts a
Act 2014 now extends SDLT at 15% and ATED over the next two years to
residential properties purchased and owned by NNPs valued at more than
£500,000. The new
SDLT rate has been in
place since 20 March 2014. For ATED, two new taxable bands will be
properties worth more than £1 million but less than £2 million will
ATED from 1 April 2015 (the annual charge will be £7,000); and
properties worth more than £500,000 but less than £1 million will fall
ATED from 1 April 2016 (the annual charge will be £3,500).
charge for each of these new bands will increase in line with the rate
inflation, as with the existing bands.
ATED-related CGT charge of 28% payable by NNPs on the disposal of
interests will also be extended to include these lower valued
Again, the extension to lower values will be in two stages. Disposals
enveloped properties with a value over £1 million up to £2 million will
subject to CGT from 6 April 2015 and disposals of enveloped properties
value over £500,000 up to £1 million will be subject to CGT from 6
However, CGT will only apply to gains that have accrued on or after
limited companies that own stately homes, farmhouses and farmworkers
now is the time to seriously consider options of how to mitigate any
penalty and to consider disclosure requirements. Dwelling includes
gardens’ as well as any land that is or is intended to be ‘occupied or
with a dwelling.
Property Relief on
Limited Company Ownership
For some time
now residential property owned in the limited company has suffered tax
disadvantages and currently the limited company has even more problems
consider and plan for. Firstly there is the question of benefits in
for directors. Secondly there is the complex issue that agricultural
owned in the limited company do not achieve Agricultural Property
for Inheritance Tax (IHT) on minority shareholdings, i.e. shareholdings
not control the company. It would therefore appear that it is essential
review residential agricultural property held in the limited company.
How can an ATED
charge be mitigated?
rules may result in significantly increased compliance costs for those
“genuine” businesses that own property that are eligible for relief
but regardless of this currently have to comply with the obligation to
ATED return. In recognition of the problem, the Government will be
on simplifying the administration of ATED for such businesses.
extensions to lower value properties have been announced well ahead of
deadline. There should be time for NNPs, which includes farms owned in
limited company, who may be affected, to consider restructuring how
residential properties are held. However, it is important to seek
to “de-enveloping” regarding available reliefs and the impact of
residential properties from their current structures. No doubt this
into announcements on “Active farmer” as part of CAP reform.
companies who may be affected by the extension to the ATED charge must
the availability of the various ATED reliefs. There is a specific
(calculated on a daily basis) available in respect of farmhouses
the purposes of a farming trade if:
farmhouse forms part of land occupied for the purposes of a farming
carried on commercially with a view to profit: and
person carrying on that trade, or a person connected with him, is
entitled to an
interest in the single-dwelling farmhouse.
For a farm
that is owned in the limited company there are problems of the ATED
the land is let and the property is not “occupied” for the purposes of
compliance consideration of s 117 IHTA 1984 has to be considered. This
have the advantage that “occupation” test for IHT qualification is
an early stage.
A day is a
relievable day for the purposes of ATED if on that day the farmhouse is
occupied by either:
farmworker (that is, an individual substantially involved in the
work of the trade, or the direction and control or its conduct)
for the purposes of the trade; or
former long-serving farmworker (that is, broadly an individual who
had been a farmworker for a period of three years or more or periods
three years or more in a five year period) or the surviving spouse or
partner of such a worker.
involvement in the day-to-day work, or the direction and control of the
of, the farming trade equates to spending 20 hours a week (on average)
throughout the year on those activities and is concerned with the time
an individual and not the time spent by a group of individuals
farmhouse. There is also relief for houses held in a limited company
open to the public for at least 28 days per year.
legislation applies to single dwellings, it is necessary to look at the
position on joint property.
part of the dwelling is to be regarded as occupying the whole of the
for establishing the extent of the relief. That is to say that where
of a single-dwelling interest is occupied for purposes that would
farmhouse relief then the whole interest will be treated as qualifying.
Action Plan for
involving a corporate entity
companies will have to question the tax treatment of residential
contained therein and the ability to obtain exemption from the ATED
Where there are concerns over the disadvantages of Benefit in Kind
(BIK) on the
farmhouse together with APR and now ATED, a total restructure might be
reconsidered mindful of the tax downsides and how they impact on CAP
the move to the Basic Payment Scheme e.g. the ”active farmer” rules. It
to say all legal and tax structures for farming operations with some
interaction must now be reviewed.
those in a partnership with a “corporate partner” (mixed membership) an
Partnership Agreement must be put in place together with a Shareholders
Agreement. This must be tied into the December 2013 corporate partner
and the loss of the Annual Investment Allowance (AIA) of £500,000. Many
say the corporate partner has no future in the farming industry.
those farms owned by a limited company, a total review of ATED,
kind (BIK) and APR for non-controlling needs to be undertaken with
considerations for a total restructure as appropriate.
The current tax
is for a “stand alone” limited company which runs alongside the
taking advantage of the fiscal benefits of the incorporation but not
matters with mixed membership or farm ownership.
About the Author
Supplied by Julie Butler F.C.A.
Butler & Co, Bennett House, The
Dean, Alresford, Hampshire, SO24 9BH.
01962 735544. Email;
F.C.A. is the author of Tax Planning for Farm and Land
Professional), Equine Tax Planning
ISBN: 0406966540, and Stanley: Taxation
of Farmers and Landowners (LexisNexis).
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Article Published/Sorted/Amended on Scopulus 2015-03-18 09:00:33 in Tax Articles