Recently, HMRC has issued a series of One-to-Many letters to corporate entities owning residential properties in the UK valued at over £500,000. These letters target companies that have not declared profits from renting these properties between the tax years 2017 and 2020, and as a result, have not filed ATED (Annual Tax on Enveloped Dwellings) returns for the relevant periods or filed ATED returns claiming rental business relief.
The letters are based on HMRC’s concern that the lack of taxable profits during this period may suggest that the company is not operating on a "commercial basis" or with the intention of making a profit. This suspicion has led HMRC to request reassessment of the company’s rental business status and compliance with ATED filing obligations.
This article provides an overview of the key issues arising from these letters, the ATED compliance requirements, and the steps companies should take to ensure they meet their obligations.
What is ATED and Who Is Liable to Pay?
The Annual Tax on Enveloped Dwellings (ATED) is a UK tax levied on non-natural persons—such as companies, partnerships with corporate partners, collective investment schemes, and trusts—that own residential properties in the UK valued at more than £500,000. These entities are required to pay ATED unless they qualify for certain exemptions or reliefs, such as the Rental Property Business Relief.
How is ATED Calculated?
ATED (Annual Tax on Enveloped Dwellings) is calculated based on the market value (on the valuation date) of a UK residential property owned by a non-natural person (like a company) and valued at over £500,000. The valuation date is fixed as:
- 1 April 2012
- Every 5 years following 1 April 2012
There are six bands, ranging from £500,000 to over £20 million. The bands and relevant ATED charges applicable for tax year 2024/25 are:
Property Value | Annual Charge |
|---|---|
More than £500,000 up to £1 million | £4,400 |
More than £1 million up to £2 million | £9000 |
More than £2 million up to £5 million | £30,550 |
More than £5 million up to £10 million | £71500 |
More than £10 million up to £20 million | £143,550 |
More than £20 million | £287,500 |
For more information about past ATED annual charge rates, you can refer to:
Properties must be revalued based on the 1 April 2022 date for the 2023 to 2028 chargeable periods. If a property was acquired after 1 April 2022, its value should be based on the acquisition date which will be applicable till next 5 years i.e. Up to 1 April 2027.
Rental Property Business Relief for ATED
One of the most common reliefs under ATED is the Rental Property Business Relief, which is designed to reduce or eliminate the ATED charge for companies that own residential properties used for legitimate business purposes, such as renting them out. If a company owns property valued over £500,000 and rents it out, it may be eligible for this relief, which can exempt it from paying ATED or reduce the liability.
To qualify for this relief, the company must prove that the property is being used for genuine rental purposes—actively rented out on a commercial basis—rather than being held solely as an investment or used for personal reasons. The relief is intended to benefit businesses that are genuinely operating rental properties, not those holding them for speculative investment.
For more details on other ATED exemptions and reliefs, you can refer to
Annual Tax on Enveloped Dwellings | ATED Avoid Common Errors
What Qualifies as a Property Rental Business?
To qualify for Rental Property Business Relief under ATED, the property must meet specific criteria outlined by HMRC. The criteria set are:
- The property must have been actively marketed and managed by independent agents.
- Actively rent out the property as part of its business operations. If the property
- Generate rental income on a commercial basis.
- Have formal rental agreements with tenants.
- Maintain proper business records, such as tenancy details and rental receipts.
- Enforce its legal rights as a landlord, for example, in cases of property damage or alterations.
If the property is not rented out, is used for personal purposes, or is occasionally let, it will not qualify for the relief. Properties held purely for investment purposes, without genuine rental activity, will also be ineligible for this exemption.
Note
Companies can still claim ATED relief if they are actively trying to let the property, but market conditions delays letting. In such cases, the company must provide sufficient evidence—such as reports from estate agents or surveyors—demonstrating the property is actively being marketed and is expected to be let once market conditions improve.
What to Do If You Qualify for Rental Property Business Relief
If your property qualifies for Rental Property Business Relief, you are exempt from paying ATED for that property. However, you are still required to file an ATED return. In general case, this return must be filed by the statutory deadline of April 30 each year, even if no tax is due.
Example
If your company owns a qualifying property on April 1, 2024, the ATED return for the 2024/25 tax year is due by April 30, 2024.
However, if the property is newly acquired, then the deadline to pay ATED is within 30 days of acquisition.
If the property is newly being constructed, then the deadline in this case is 90 days within earlier of the following dates:
- When council tax stamps it and considers the property as dwelling
- When the property is occupied.
In the latter cases, the purchase price/Cost is used to calculated ATED charge which will be applicable till next 5 years or 1 April 2027 if earlier.
HMRC’s Concern and Next Steps
HMRC’s issuance of these letters highlights concerns regarding the commercial nature of companies’ rental businesses. Given that the company has declared no profits from renting out the property between 2017 and 2020, HMRC suspects that the business may not meet the criteria for a “genuine rental business” and may not be operating on a commercial basis. As a result, HMRC believes that ATED returns should have been filed, and the company may now be liable for ATED charges for the relevant years. As a result, HMRC has issued different versions of the letter:
What to do Now?
If your company falls within the scope of these letters, you must reassess whether your rental business meets the criteria for Rental Property Business Relief for the tax years 2017 and 2020 within 40 days of receiving the letter. Failure to do so may result in HMRC making an assessment based on their own findings, which could lead to additional charges, including penalties.
To determine eligibility for relief, you can refer to the above slide on what qualifies as a property rental business, or you can refer to paragraph 31.4 of below guideline, "ATED-Technical-Guidance".
This can be very complex and difficult, so it’s better to take a professional advice to ensure your compliance and safeguard your company’s tax position.
What If the Property Does Not Qualify for Relief?
If, after reassessment, it is determined that the company’s rental business was not run on a “commercial basis” or “with a view to profit,” ATED is due, and a disclosure must be made to HMRC. In such cases, penalties for failing to file ATED returns may also apply. It is strongly recommended to consult with a tax professional to handle the disclosure process and ensure the correct tax position is taken.
What If the Property Qualifies for Relief?
If the company’s property rental business qualifies for the Rental Property Business Relief and you think the company does not need to make a disclosure, you must submit the relevant supporting documents and information to HMRC. You must include the following information:
This includes proof that the property is genuinely being rented as part of an ongoing business.
Note
If you don’t give right information to HMRC within 40 days of receiving the letter, HMRC may make an assessment of what they think the company owes. If necessary, HMRC may also charge penalties for not providing the required information or documents. HMRC also charges interest on any late payments, but if you pay the tax, you owe as soon as possible, it will reduce the interest you have to pay.
The rate of interest would be decided as per section 86 (Self-assessment). The percentage of the interest is subject to change regularly. Please find below the rate of interest for late payment
From | Late Payment % |
|---|---|
26 November 2024 | 7.25 |
20 August 2024 | 7.50 |
22 August 2023 | 7.75 |
11 July 2023 | 7.50 |
31 May 2023 | 7.00 |
13 April 2023 | 6.75 |
21 February 2023 | 6.50 |
6 January 2023 | 6.00 |
22 November 2022 | 5.50 |
11 October 2022 | 4.75 |
23 August 2022 | 4.25 |
5 July 2022 | 3.75 |
24 May 2022 | 3.50 |
5 April 2022 | 3.25 |
21 February 2022 | 3.00 |
7 January 2022 | 2.75 |
7 April 2020 | 2.60 |
30 March 2020 | 2.75 |
21 August 2018 | 3.25 |
21 November 2017 | 3.00 |
23 August 2016 | 2.75 |
HMRC charges different penalties for failure to pay ATED annual charge and failure to file ATED return.
Penalties in case of Failure to file
Time Period | Charge |
|---|---|
Initial | £100 |
3 Months to 6 Months | £10 daily |
More than 6 Months | Higher of 5% of £300 |
More than 12 Months | Higher of 5% of £300 |
Penalties in case of Failure to Pay ATED Charge
Time Period | Penalty |
|---|---|
Initial | 5% |
More than 5 Months | An Additional 5% |
More than 11 Months | An Additional 5% |
If you had committed tax fraud previously
If this is the case, then you should inform HMRC by filling a CDF1 Form.
If you decide to use the Contractual Disclosure Facility (CDF) to admit to any tax fraud, you must tell HMRC that you have received the letter they sent you as part of the process. This is important because it helps HMRC handle your case correctly while you are making the disclosure. Basically, you need to inform them that you've received their letter when you start the disclosure process.
Authorising an Agent
If you want someone, like an accountant or tax adviser, to handle your ATED-related matters for you, you need to give HMRC permission. To do this, you should fill out Form ATED1 and send it to HMRC. This form gives your agent the authority to act on your behalf for ATED and related taxes, like Capital Gains Tax.
For Form ATED1, you can refer to:
If you already have a company registered agent, then a copy of this letter was also sent to the company registered agent by HMRC.
Conclusion
HMRC's issuance of the One-to-Many letters regarding ATED compliance highlights the importance of ensuring that companies owning UK residential properties worth over £500,000 meet their filing obligations. For corporates with rental properties, it is critical to reassess whether they qualify for Rental Property Business Relief under ATED, especially if the company has not declared profits for the relevant periods. If a company is not operating on a "commercial basis" or "with a view to profit," it may not qualify for this relief and could be liable for ATED charges, along with potential penalties for non-compliance.
To mitigate risks, companies must review their rental business status within 40 days of receiving the letter from HMRC. If the property does not qualify for relief, ATED returns should be filed promptly to disclose the liability, avoiding further penalties. However, if the property qualifies for relief, appropriate supporting documentation should be submitted to confirm this status.
Given the complexity of ATED regulations and potential consequences for failing to file correctly or claim the right relief, it is highly advisable for companies in this situation to seek professional advice. Consulting with a tax expert can ensure that companies meet their compliance requirements and minimise the risk of penalties or interest charges. Prompt action will also help in resolving any outstanding issues and maintain a proper tax position with HMRC, thereby safeguarding the company from further scrutiny or assessments.
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