Act now to avoid new tax on farmhouses

Many farming families face a new tax on their houses from April 2015, and must act now to reduce their liability, Westcountry accountant Old Mill has warned. Even those who qualify for exemption must apply, as relief is not given automatically.

This year’s budget introduced a new threshold for the Annual Tax on Enveloped Dwellings (ATED), which affects residential properties owned by companies and mixed partnerships. Previously the tax only applied to properties worth over £2 million, but from April 2015 it will include those worth more than £500,000.

“The Government introduced the ATED in 2013, seemingly in response to swathes of central London property being bought in offshore companies, often in an attempt to avoid large Stamp Duty Land Tax charges on the cost,” Old Mill’s head of rural services, Andrew Vickery, said.

“Unfortunately the tax is now being extended to properties with a value between £500,000 and £2 million, which will clearly affect far more properties and potentially a good number of farmhouses, as they are often owned by a farming company or corporate partnership.”

The new banding will come into effect from April 1, 2015 and tax will first be payable on 31 October 2015. The annual charge will be £3,500 for values between £500,000 and £1 million, rising to £7,000 for properties worth between £1 million and £2 million.

“Fortunately, there are some useful exemptions for genuine working farmhouses, farm workers’ dwellings and properties that are let out,” Mr Vickery said. “However, the rules to qualify for the relief are – perhaps inevitably – not straightforward.

“In addition, property owners have to complete an ATED return each year to claim the relief – it’s not applied automatically.”

Where relief is not available, owners may consider restructuring to remove the company’s interest.

ATED checklist

  • Do you own houses worth £500,000 or more?
  • Are they owned by a limited company or a partnership which has a company partner?
  • Take professional advice on available relief and what returns need completing.
  • If no relief is available, consider other options to avoid the charge.

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