HMRC Challenges Claims For ATED/SDLT Relief

Author:Ms Helen Cox and Jonathan Legg
Profession:Mishcon de Reya

The Annual Tax on Enveloped Dwellings (ATED) was introduced by the Finance Act 2013 and imposes an annual charge on corporate entities holding UK residential property worth more than £500,000. A penal fixed rate of 15% Stamp Duty Land Tax (SDLT) can also apply on the acquisition of UK residential property by a corporate entity. Relief is available for corporate entities running a "qualifying rental business", however we have seen a number of cases where HMRC has sought to deny taxpayers relief for loss-making rental businesses.

ATED and the fixed 15% SDLT rate are not generally intended to apply to companies carrying on genuine commercial activities and HMRC acknowledges several circumstances in which a corporate entity will be exempt from the charge. Among the available reliefs is the property rental business relief, applicable where a single-dwelling interest is owned and run as part of a "qualifying property rental business", i.e. a business operating with a view to making a profit.

In order to determine whether a period of ownership is relievable (or the 15% rate applies), HMRC will seek evidence that either:

The interest in the property is being exploited as a source of rent; or The person entitled to that interest is taking active steps with a view to exploiting the property as a source of rent. If steps are not taken and the property is left unoccupied for a significant period, HMRC will require a good commercial reason for the delay (for example, renovation or redecoration) in order to grant the relief. Recently, we have seen several cases where HMRC has challenged the commerciality of...

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