Property Companies fined by HMRC for not claiming tax exemption

Two property owning companies were recently fined by HMRC – in one case £1,300 – for failing to notify them that they were exempt from a property tax charge.

Lucas Properties Ltd developed residential properties, a trade which is exempt from the “Annual Tax on Enveloped Dwellings”(ATED),however, it is relatively unknown that a company must still notify HMRC that it is exempt. HMRC subsequently fined Lucas Properties for its failure to notify them that it was exempt. The case went to Tribunal, but the taxpayer lost. The Tribunal said that the “unfairness and proportionality cannot be considered”

Having to file a form with HMRC to say that a tax doesn’t apply may seem nonsense, but this is a clear warning that HMRC will now enforce penalties even where no loss of tax has occurred.

For the current tax year 2015/16, a company must file the new Relief Declaration Return no later than 1 October 2015.

Companies – or partnerships with corporate partners – are potentially caught by ATED if at April 2015, they hold any residential dwelling with a value of £1m or more; this threshold falls to £500k from April 2016. For a multiple occupancy building, such as flats, the £1m threshold is for any single dwelling, not for the whole building.

ATED can involve an annual charge, and higher rates of Stamp Duty Land Tax and Capital Gains Tax. Two of the key exemptions from ATED are for companies involved in property development or letting, as the example above shows. If this applies to you, you should make sure that you make the Relief Declaration Return on time. For companies that need to pay ATED, the deadline for their 2015/16 return has already passed – it was 30 April 2015.