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A Complete Guide to Annual Tax on Enveloped Dwellings (ATED)

Published by Prasun Shrestha
Posted Date: October 21, 2022 , Modified Date: June 3, 2024

ATED (Annual Tax on Enveloped Dwellings) is an annual tax payable by a company that owns UK residential property valued at more than £500,000. This limit is applicable per property.

Annual Tax on Enveloped Dwellings (ATED) is a tax charged in the UK to corporate bodies holding ‘single dwelling interests’ in the UK. 

Motive Behind Introduction of ATED

With the intention of combating a series of anti-avoidance schemes and making it less attractive to hold high-value UK residential property via a corporate structure, ATED regime was introduced by Finance Act 2013, Part 3.

The main reasons behind introducing the ATED are:

  • Transparency - ATED promotes transparency by requiring companies to declare ownership of high-value residential properties, preventing tax avoidance.
  • Fairness - It aims to ensure that individuals and companies owning high-value residential property make a fair contribution to the tax system.
  • Revenue generation - ATED generates additional tax revenue, which can be utilised for public welfare and infrastructure development.

Applicability of ATED

The ATED regime applies to UK residential property owned by ‘non-natural persons’, including:

  • Companies
  • Partnerships with at least one company member, or
  • Collective investment schemes

For Example, 

If the company owns more than one property whose total value is more than £500,000, but the value of the individual property is less than the limit, ATED will not be applicable.

Meaning of Dwelling for ATED

As previously mentioned, ATED applies specifically to "single-dwelling interests." Determining whether a property qualifies as a single dwelling interest begins with establishing whether it meets the criteria to be considered a dwelling. For ATED purposes, a dwelling typically consists of residential units, such as houses or flats, which are used as individual residences. Non-residential buildings are generally not subject to ATED.

HMRC’s guidance expands the definition of a dwelling to include not only the main building but also land which comprises the grounds or gardens to a dwelling and any other land that is, or is at any time, intended to be occupied or enjoyed with a dwelling. Some of the examples stated in the HMRC’s guidance include: a garden, a tennis court, drive, garage, swimming pool and changing room, summerhouses etc.

It is crucial to note that where a building is capable of being used as a separate dwelling, such building would not be prevented from forming a part of a larger single dwelling. For example, where there is a ‘flat’ above the garage or a separate ‘flat’ inside the house, these may be included as part of the main dwelling. However, this may change depending on the facts of each case.

However, dwellings excludes the followings:  

  • Hotels
  • Guesthouse
  • Boarding School Accommodation
  • Hospitals
  • Student Halls of Residence
  • Military Accommodation
  • Care Homes
  • Prisons

Valuation for ATED

Non-natural persons holding UK residential properties must be informed of the valuation requirements for ATED purposes. Typically, the property's value, subject to ATED, is determined by its market value on the valuation date. The valuation date is fixed as:

  • 1 April 2012
  • Every 5 years following 1 April 2012
Valuation for ATED

Although it is not mandatory for companies to use a professional surveyor or estate agent to revalue the property, it is advisable to do so as it ensures the robustness and reasonableness of the figures.

Additionally, valuations must be a precise amount and not ‘falling within ATED range’ type valuations.

Substantial Acquisitions and Disposals on Dwellings

In addition to the 5-year valuation rule, the substantial acquisition and disposal of the chargeable dwelling by the companies trigger the need for revaluation for ATED purposes.

Generally, an acquisition of a chargeable interest in a dwelling is a ‘substantial acquisition’ if the chargeable consideration for the acquisition (including any linked acquisition of a chargeable interest in or over the same dwelling) is £40,000 or more.

For Example, 

Suppose a dwelling was valued at £4 million on 1 April 2022 and the owner disposed of an interest in the dwelling (perhaps a small parcel of land) for £100,000 on 1 October 2023.

In this scenario, a revaluation is necessary. However, the revaluation would not simply be £3.9 million but would be the market value of that reduced interest on the date of the disposal. The reduced interest could have a market valuation on 1 October 2023 of more than £4 million and may even move the dwelling from one band to another.

When to File the ATED Return?

If the company is within the scope of ATED on 1 April, it is required to submit the annual ATED return.

The ATED return is prepared to 31 March annually irrespective of the company's year-end, and unlike other tax returns, ATED is forward-looking.

E.g., The return for year ending 31 March 2025 will have to be submitted to HMRC by 30 April 2024. 

You usually need to submit the return for:

New Acquisition

Within 30 days of acquisition, if it comes within the regime after 1 April.

Newly built property

Within 90 days of

The property becoming dwelling for Council tax purpose, or its first occupancy

Whichever is earlier.

Any other case

30th April

What are the ATED Annual Charges?

Chargeable amounts for 1 April 2024 to 31 March 2025

Property Value

Annual Charge

More than £500,000 up to £1 million

£4,400

More than £1 million up to £2 million

£9,000

More than £2 million up to £5 million

£30,550

More than £5 million up to £10 million

£71,500

More than £10 million up to £20 million

£143,550

More than £20 million

£287,500

Reliefs Available Under ATED

There are number of ATED reliefs which may eliminate or reduce the amount payable for ATED.

Generally, the relief can be claimed if the property under the question is:

  • Let to a third party on a commercial basis and is not, at any time, occupied (or available for occupation) by anyone connected with the owner
  • Open to the public for at least 28 days a year
  • Being developed for resale by a property developer
  • Owned by a property trader as the stock of the business for the sole purpose of resale
  • Repossessed by a financial institution as a result of its business of lending money
  • Acquired under a regulated home reversion plan
  • Being used by a trading business to provide living accommodation to certain qualifying employees
  • A farmhouse occupied by a farm worker or a former long-serving farm worker
  • Owned by a registered provider of social housing or a qualifying housing co-operative

Determining the ATED relief can become complicated and so we advise to seek professional advice to determine the availability of ATED relief.

Fines & Penalties for Non Filing or Incorrect Filing

Failure to file tax returns or other necessary documents on time may result in the imposition of the following penalties:

  • An initial penalty of £100 will be applied the day after the due date of your tax return or document.
  • Daily penalties of £10 per day will be incurred for up to 90 days following a three-month delay in filing your return or document.
  • A 'further penalty' of £300 or 5% of our estimate of your tax liability (whichever is higher) will be levied after a six-month delay in filing your tax return or document.
  • A second 'further penalty' of £300 or 5% of our estimate of your tax liability (whichever is higher) will be imposed after a twelve-month delay in filing your tax return or document.

In instances where tax returns or documents have not been filed, HMRC reserves the right to estimate the tax liability. In such cases, the penalties charged at the six-month and twelve-month marks will be 5% of the estimated liability or £300, whichever amount is higher.

Upon filing your return or document, the penalties at the six-month and twelve-month marks will be automatically recalculated if the tax liability in the return differs from our initial estimate.

After HMRC has applied the second further penalty, the percentage rate will escalate if, by failing to submit your return or document within twelve months, you:

  • Concealed information.
  • Were aware that the information could aid in determining your precise tax liability.

During the assessment, HMRC will ascertain whether there is a withheld of information and, if so, the underlying rationale. This rationale is referred to as the 'behaviour'. HMRC charges different penalties based on the behaviour it deems fit.

Fines & Penalties for Non-Payment of Annual Charge

Penalties under ATED follow the rules that apply to the income tax and corporation tax self-assessment regimes and cover late filing, late payment and inaccuracies.

When ATED is not paid on time, whether partly or in full, the penalties charged is as follows:

  • An initial penalty of 5% of the tax unpaid at the penalty date and
  • Two further penalties of 5% of the tax unpaid at 5 and 11 months after the penalty date

For more detailed information, explore HMRC’s guidance.

Amendment of ATED Return

ATED return needs to be amended if

  • You have disposed of the property
  • Error in the information sent earlier
  • Claiming a relief

The amended return must be submitted within 12 months of the end of the relevant period. If you submitted your original return after 1 January following the end of the relevant chargeable period, you would need to make any changes within 3 months of the date you submitted your original return.

Conclusion

In summary, ATED imposes an annual tax on UK residential properties owned by companies valued above £500,000. It aims to counter avoidance schemes, promote fairness, and generate revenue for public welfare. Compliance with ATED, including valuation, filing, and relief requirements, is crucial to avoid fines. Given the complexity, seeking professional advice is advised for accurate reporting and compliance.

Need expert advice on ATED and property taxation?

Contact us today for efficient and hassle-free assistance.

Prasun Shrestha
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