The growing numbers of landlords incorporating their property portfolios is the primary reason for a significant fall in revenue from the Annual Tax on Enveloped Dwellings (ATED), according to HM Revenue and Customs (HMRC).
The latest data from HMRC revealed a £32m fall in the value of ATED receipts collected in 2017/18 – down 18 per cent to £143m.
This fall was in large part to a growing number of relief claims made by landlords – although HMRC stated year-on-year comparisons should be treated with caution.
There were a total of 16,140 relief declarations in 2017-18, an increase of 3,410 (27%) from 2016-17.
Likely from incorporating landlords
“The increase in reliefs in 2017-18, particularly the property rental relief is likely to be from landlords incorporating,” HMRC said.
“This is likely to be due to financial planning following changes in how mortgage interest relief can be claimed from 2017-18.
“Also tax campaigns reminding taxpayers and their agents of the need to complete a return, even if no liability is due, may have had a significant impact on the number of declarations,” it added.
About 77 per cent of all relief claims, totalling 12,370, related to property rental relief.
This was followed by property development relief accounting for 2,410 claims, or 15 per cent of the total, with other types of reliefs totalling 1,360 claims or just over 8 per cent.
Falls in highest values
Overall, ATED receipts in 2017-18 were down in all of the property value bands above £1m, with the largest fall in the band of properties worth more than £20m, where revenue dropped £10m or 23 per cent.
The number of liable declarations were down by 820 to 7,020 from 7,840 in 2016-17 – although in this instance the band for properties over £20m was stable.
“The cause of fewer liable declarations may be due to an anticipated increase in the tax burden on envelopers, including the new valuation point for properties that started in April 2018,” HMRC said.
“Other tax changes (e.g. Capital Gains Tax and Inheritance Tax) may also have led to de-enveloping of property, or re-arranging the use of the property to fall within the scope of reliefs (e.g. leading to the liable claims being liable for shorter periods of time).”
However, it added that these impacts had not been evaluated.