The Annual Tax on Enveloped Dwellings (ATED) is an annual tax payable on companies, corporate partnerships, and investment vehicles that own UK residential property worth over £500,000. This was introduced to stop tax avoidance by entities holding high-value property. If you own such a property through a company or similar entity, you need to understand ATED for compliance and planning purposes. This article will take you through the basics of ATED, from defining eligible properties to calculating charges and filing returns.

Quick Facts

• The Annual Tax on Enveloped Dwellings (ATED) applies to companies owning UK residential property worth over £500,000 and is designed to stop tax avoidance.
• Property valuation is key to ATED compliance, properties need to be revalued every 5 years based on market conditions and a specific valuation date.
• Chargeable periods are important in determining property valuation for ATED compliance, as they outline the specific revaluation dates that affect property owners in determining their tax obligations.
• Filing ATED returns on time is crucial to avoid penalties, there are various reliefs available for properties that meet certain criteria, you will need professional help to manage this optimally.

What is ATED?

The Annual Tax on Enveloped Dwellings (ATED) is an annual charge on companies, corporate partnerships, and certain investment vehicles that own UK residential property worth over £500,000. Introduced to stop tax avoidance and ensure high-value property held in corporate structures contributes fairly to the public purse, ATED targets non-natural persons (NNPs) such as companies and certain collective investment schemes.

The tax is based on the value of the property, with a threshold of £500,000. So if your property is worth over this amount and is held by an entity such as a company, a partnership with corporate members, or a collective investment scheme, you will be subject to ATED. The charge applies whether the property is rented out or used privately as long as it is not owned by an individual.

Understanding ATED’s reach means you can comply. This tax applies to both domestic and foreign entities that own UK residential property. Knowing if your property meets the criteria means you can manage your tax.

What is a Dwelling for ATED purposes

For ATED purposes a ‘dwelling’ is defined broadly. It includes any property used, or capable of being used, as a residence. This includes houses, flats and associated land such as gardens and grounds. Essentially if a property can be used as a living space it will be a dwelling under the ATED rules.

Not all residential property is a dwelling for ATED. Exclusions include various types of accommodation. These include hotels, guest houses, boarding schools, hospitals, student halls, military facilities, care homes and prisons. These exclusions recognise the different purposes these buildings serve which are not residential in nature and therefore not the target of ATED. For mixed use properties only the residential part is assessed for ATED and each dwelling within the property is assessed separately.

ATED doesn’t apply to residential property owned by individuals so the tax targets property held in corporate structures to stop tax avoidance.

Valuing Your UK Residential Property

Valuing your UK residential property is key to ATED compliance. The valuation date is critical in determining the value of your property for tax purposes. The valuation date for the ATED years 2023-24 to 2027-28 is 1 April 2022. If the property was acquired after this date, the acquisition date will be used instead. This date is important as it is the base date for your tax calculations.

UK residential property valued at over £500,000 must be revalued every 5 years to reflect the current market. The next revaluation date is 1 April 2022, so all properties subject to ATED must be assessed as at this date. While a formal valuation is not required by law, getting one from a reputable surveyor is highly recommended to avoid penalties for incorrect valuations. This will save you a lot of hassle and financial penalties in the long run.

Understanding the valuation process helps with planning and managing your tax. Correct property valuation means accurate tax calculation and can mean you can claim reliefs or exemptions.

Annual Tax Liability

The annual tax liability under ATED is based on a banding system of property value. For the 2023-2024 period properties worth between £500,000 and £1 million pay £4,150. This increases significantly as the property value increases as the tax is progressive.

For example UK residential property worth between £2 million and £5 million pay £31,050. The top band for 2024-2025 is for properties worth over £10 million which pay £143,550. These are prorated if the property is owned for only part of the year so the tax reflects the period of ownership.

Revaluations every 5 years can change the ATED band for a property and the tax payable. Knowing the revaluation dates and pre return banding check helps property owners plan and prepare their tax.

Filing Your ATED Return

Filing your ATED return accurately and on time avoids penalties. Returns must be filed in advance for the chargeable period starting 1 April either online or on paper. The deadline for 2024/25 ATED returns is 30 April 2024.

If more tax is due after the initial return a further return must be filed within 30 days. Returns for new build properties must be filed within 90 days of first occupation or when the property is deemed to exist for Council Tax purposes. Changes can be made within 12 months of the end of the chargeable period and online returns can be amended if originally filed online.

You must file an ATED return even if no tax is due to claim relief. Managing multiple properties can be complicated and professional help can simplify the process.

Reliefs and Exemptions from ATED

ATED has several reliefs and exemptions to reduce the tax for qualifying properties. Properties rented out commercially, as long as no one connected to the owner occupies them, may qualify for relief. Property developers can also benefit from specific tax reliefs under the ATED regime if the properties are held for the purpose of development and resale. Properties open to the public for at least 28 days a year may also qualify for property rental businesses.

Registered social housing providers can claim relief for the dwellings they own. Properties under the Homes for Ukraine scheme may not qualify for some reliefs, but some exemptions can still be claimed for UK property. Property development activities, such as refurbishment and demolition for redevelopment, are considered when determining eligibility for relief.

To claim ATED reliefs, use the ATED online service or request a paper return if online filing is not possible. Exemptions do not require a return if the property meets the conditions in the technical guidance.

Professionals can help you with ATED relief claims to ensure eligible deductions are not missed. A Relief Declaration Return is required if no ATED is due because of qualifying reliefs and is shorter than a full return.

Penalties and Interest for Non-Compliance

Non-compliance with ATED means significant penalties and interest. A £100 penalty is charged immediately after the due date if a return is late. If not filed within 3 months a daily penalty of £10 can be charged for up to 90 days.

Further penalties apply if the return is 6 months late of £300 or 5% of the estimated tax liability whichever is greater. Late payment of ATED attracts a 5% ated charge of the unpaid tax at the penalty date. Interest on unpaid ATED tax runs until paid in full, current rate is base rate plus 2.5%.

You can appeal against ATED penalties within 30 days of the penalty notice from HMRC. Professional help can reduce the risk of ATED compliance errors which attract substantial penalties.

Interaction with Other Taxes

ATED interacts with other taxes, particularly Stamp Duty Land Tax (SDLT) and Capital Gains Tax (CGT). ATED aims to prevent SDLT avoidance by taxing non-natural persons owning high value residential properties. If a corporate entity buys a property over £500,000 it will incur a 15% SDLT surcharge on top of any ATED liabilities.

Companies subject to ATED may also have CGT on property disposals which will impact their overall tax position. Navigating these interactions requires careful planning to be tax efficient and compliant.

Get Professional Help

ATED is complicated so you need professional help to be compliant. Specialists can help with the ATED returns and reliefs. Property developers in particular will find ATED affects their tax planning especially around property sales and SDLT liabilities.

Managing SDLT and CGT requires careful planning for ATED property owners. Get professional help before you submit your ATED returns to reduce errors and ensure all eligible deductions are claimed.

Conclusion

ATED is critical for companies and investment vehicles owning high value UK residential properties. From what constitutes a dwelling to calculating the tax and filing the return every step requires attention to detail. Reliefs and exemptions can reduce the tax but they must be claimed correctly.

Penalties for non-compliance are severe so accurate and timely returns are important. Managing the interactions with SDLT and CGT adds another layer of complexity. Get professional help to simplify the process and be tax efficient so you comply without errors at a cost.

Frequently Asked Questions

What is the threshold for ATED?

The threshold for ATED is £500,000; properties valued above this amount and owned by non-natural persons must pay the annual tax.

What types of properties are excluded from the definition of a dwelling for ATED purposes?

It is important to note that properties excluded from the definition of a dwelling for ATED purposes include hotels, guest houses, boarding schools, hospitals, student halls, military accommodation, care homes, and prisons. Thus, these types of properties do not fall under ATED regulations.

How often must properties be revalued for ATED?

Properties must be revalued every five years to determine their taxable value for ATED purposes. This schedule ensures that valuation remains accurate and reflective of current market conditions.

What are the penalties for late ATED returns?

The penalties for late ATED returns commence with a £100 charge, escalating to a daily penalty of £10 for up to 90 days, and additional fines if the returns exceed six months overdue.

Can I claim relief if my property is rented out commercially?

You can claim relief for commercially rented properties as long as they are not occupied by someone associated with the owner. It is essential to ensure compliance with the relevant regulations to successfully secure this relief.