Firstly, there is no specific legislation regarding the allowability of an ATED charge. In addition, there is no guidance available from HRMC on the allowability of this as an expense. Therefore, we must look at the general tax principles and apply them to this situation.
We would need to be comfortable that this is a revenue item, as opposed to a capital cost. The fact that this is an annual charge would support the argument that it is a revenue item, as will the fact that this expenditure does not provide an enduring benefit.
You have not mentioned what the company’s business is. This affects the rules we need to consider.
- If a trading company, is it an expense incurred wholly and exclusively for the purposes of the trade?
- If a property rental company, is the expense allowable under s54 CTA 2009 (via s210 CTA 2009) as an expense against the letting income or, if not, is it an allowable management charge against total profits under s1219 CTA 2009?
- If any other type of investment company, is it an allowable management expense under s1219 CTA 2009.
The ATED charge may be incurred for the purpose of a company’s trade if it is a revenue cost associated with providing a benefit to employees or officers. For example, if the shareholder is a director, the ATED charge is an additional cost in providing such a benefit. HMRC may consider whether this relates to the overall remuneration package of said director or whether it is for a private purpose – see BIM47105 to BIM47107.
If rental income is being received from the son, is the expense wholly and exclusively incurred for the purposes of the letting? As no such ATED charge would arise if the property was let to a third party, it may be argued that this is not an expense wholly and exclusively incurred in letting the property but a consequence of choosing to let it to the shareholder’s son.
Management expenses under s1219 CTA 2009 are not governed by a “wholly and exclusively” rule but are the costs of managing the company’s investments – subject to conditions. HMRC have a large of amount of guidance on management expenses at CTM08000.
Depending on the nature of the company’s business and the reason for the company letting the property to the shareholder’s son, the allowability of the ATED charge will follow the principles outlined above.
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