Landlords who own homes with a limited company need to watch out for a change in the rules that could see them unwittingly paying mansion tax.
Mansion tax, or the Annual Tax on Enveloped Dwellings (ATED), was first collected in 2013 against homes worth £2 million or more on homes that are empty or lived in by someone connected with the corporate owner.
Since then, the threshold has lowered – to £1 million this tax year and down again to £500,000 next year.
Companies should have settled the bill for homes worth £2 million or more by the end of April, but directors have until October 1, 2015, to file returns and pay the tax on homes worth between £1 million and £2 million.
The catch for many companies is that ATED reliefs are generous and widely available, but they are not granted automatically and a company has to file an ATED return to claim them.
Companies that fail to file a return are fined £1,600 or more, even if they have no mansion tax to pay.
Mansion tax was aimed at penalising homeowners who tried to pay a lesser rate of stamp duty by purchasing a home with a company.
The tax affects all companies owning property other than companies that:
- Rent out buy to let homes at a commercial rate to independent tenants unconnected to the company directors or shareholders
- Operate a buy to sell business
- Run a furnished holiday letting business and the properties are not lived in by anyone connected to the directors or shareholders
Other reliefs apply to tied homes and agricultural properties.
Mansion tax for homes valued between £1 million and £2 million is £7,000 for 2015-16.
The tax on homes valued between £2 million and £5 million is £23,250 and top-end properties worth more than £20 million, the tax is £218,000.
For the 2016-17 tax year, the lower value ATED threshold falls to £500,000.
With the average London home valued at £455,000, this new threshold is likely to net thousands more properties.
Mansion tax costs £3,500 for these homes.