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ATED Relief Clawback: Occupation by a Non-Qualifying Occupation

Published by Prasun Shrestha
Published Date: April 3, 2024

The HMRC offers several reliefs to companies from the Annual Tax on Enveloped Dwellings (ATED). For instance, companies operating property rental businesses are exempt from ATED. However, there are instances where ATED relief is withdrawn if a 'non-qualifying individual' occupies the property, even if for just one day. Join us as we delve into this complex provision.

Introduction to Look-Back and Look-Forward Mechanisms

As mentioned above, relief is not available when a non-qualifying individual occupies the property. Additionally, relief may be withdrawn for the earlier part of the chargeable period and the preceding chargeable period if a qualifying individual didn't occupy the property during these times. In such situations, the Look-Back provision is said to have been activated.

However, if a qualifying individual occupied the property on any day between the earlier day and the day of non-qualifying occupation, relief will not be withdrawn for those days.

Similarly, relief will not be available on any subsequent day in the current chargeable period or any day in the next three chargeable periods if the same landlord or another member of the partnership running the property rental business remains entitled to the interest. The withdrawal continues unless there is at least one intervening day on which a qualifying individual occupies the property in the course of the rental business. In such situations, the Look-Forward provision is considered to have been in operation.

Meaning of a 'Non-Qualifying Individual'

A 'non-qualifying individual' generally includes the following:

  • An individual who is entitled to the interest, i.e. the property
  • An individual ('a connected person') who is connected with a person entitled to the interest
  • If a person is entitled to the interest as a member of a partnership or any person who is connected with a partner in that partnership
  • The spouse or civil partner of a connected person
  • A relative of the spouse or civil partner of a connected person, etc.

β€˜Relative’ here means

  • The employee's spouse
  • The parents, children, and siblings of both spouses
  • Remoter ancestors or descendants of both spouses like grandparents and grandchildren
  • The spouses of all the persons mentioned above.

Effect of Relief Withdrawal on ATED Return

ATED relief clawback: Occupation by a Non-Qualifying Occupation

Whether the ATED return is affected by the implications of the Look-Back and Look-Forward provisions depends on whether the company had claimed ATED relief in its return.

If the company had claimed ATED relief in its return and the relief is withdrawn during the year, the company must amend its ATED return. Companies can make amendments to their return or their return of adjusted chargeable amount within 12 months of the end of the chargeable period to which the amendment relates. However, if the return was filed late or is an amendment, the period for amending the return is limited to three months after the date of the return, if longer.

Practical Example

Let's take A Ltd as an example to understand how these restrictions actually work.

A Ltd operates a commercial property rental business with an aim to make a profit. As the property qualifies for the relief, A Ltd files the ATED return for the year 2023/24 and claims the relief.

From 1 April 2023 until 1 August 2023, A Ltd carried out repair and decoration works on the property, which it intended to exploit as part of its property rental business. On 1 August 2023, the property was marketed and let to a qualifying individual, Mrs Rigby from 1 October 2023 to 31 December 2023. When Mrs Rigby vacated the property, A Ltd sought another tenant. Following a month-long search, A Ltd decided to let the property to a non-qualifying individual, Mr McKenzie, from 1 February 2024 to 1 June 2024. On 1 August 2024, a qualifying individual occupied the property.

In this example, A Ltd's ATED position unfolds as follows:

From 1 April to 31 August 2023: Although the property was not let out to a qualifying individual during this period, A Ltd held it with the intention of renting it out, thus qualifying for relief.

From 1 October 2023 to 31 December 2023: With a qualifying individual, Mrs Rigby, occupying the property, it qualifies for relief.

Look-Back triggered:

From 1 February 2024 to 1 June 2024: As a non-qualifying individual, Mr McKenzie occupies the property during this time, it loses eligibility for relief.

The Look-Back provision is activated, withdrawing the relief permitted during the search for a tenant from 1 January to 31 January 2024.

Look-Forward Triggered:

The Look-Forward provision is also triggered, resulting in the clawback of relief otherwise granted when the property is vacant from 2 June 2024 to 31 July 2024.

From 1 August 2024: As a result of a qualifying individual occupying the property, it becomes eligible for the relief from 1 August onwards.

Conclusion

Navigating ATED relief provisions concerning non-qualifying occupancies requires a detailed understanding of the Look-Back and Look-Forward mechanisms. Failure to comply can result in the withdrawal of relief, impacting a company's tax liabilities and non-compliance with HMRC.

Need expert advice on ATED and property taxation?

Contact us today for efficient and hassle-free assistance.

Prasun Shrestha
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