What is the Annual Tax on Enveloped Dwellings (ATED)?

What is the Annual Tax on Enveloped Dwellings (ATED)?

Does your company own UK residential property valued at £500,000 or above? If so, you could be subject to the Annual Tax on Enveloped Dwellings (ATED).

What is ATED?

Annual Tax on Enveloped Dwellings (ATED) is an annual tax charge, payable mainly by companies who own UK residential property valued at £500,000 or above. The ATED regime also applies to partnerships, which include corporate partners and collective investment schemes.

If a property falls within ATED, an annual return must be submitted to HMRC along with the tax payment. Properties must be revalued every five years and, as such, a property revaluation needs to have taken place on 1 April 2017. This valuation (or the purchase price if acquired later), will then be used for the return period from 1 April 2018 to 31 March 2019, with the ATED return due by 30 April 2018.

ATED applies to properties that are dwellings. A property is a dwelling if all or part of it is used, or can be used, as a residence (for example, a house or flat) or is suitable for use as a dwelling and is valued at more than £500,000.

Non-residential properties are outside the scope of ATED. There are also other properties that are not classed as dwellings, such as hotels, guest houses, boarding school accommodation, hospitals, student halls of residence, military accommodation, care homes and prisons.

ATED charges and reliefs

There are various reliefs available against the ATED charge. However, even if you are eligible for one of these reliefs and there is no tax payable, you must still submit a return and make a claim for the relief by completing a Relief Declaration Return. Again, the deadline date for the submission of this return is 30 April 2018. These returns can be completed and submitted to HMRC online. Relief can be claimed from this tax if the property is to be used in a property rental business, property development business, property trader business, the property is made available to the public (eg stately homes), the company is a financial institution acquiring property in the course of lending, the property is occupied by employees, is being provided as social housing or is a farmhouse (unless certain connected persons are in residence).

The implications of falling within the scope of this tax (and not being entitled to relief as above) are:

  • For 2018/19 an annual tax charge of between £3,600 and £226,950 will be payable, depending on the value of the property, as follows:
Valuation Banding  2018/2019 ATED Charge 
£500,001 – £1,000,000  £3,600 
£1,000,001 – £2,000,000  £7,250
£2,000,001 – £5,000,000 £24,250
£5,000,001 – £10,000,000  £56,550
£10,000,001 – £20,000,000   £113,400  
£20,000,001 and over  £226,950 
  • 15% Stamp Duty Land Tax will be payable on acquisition of the property.

Capital Gains Tax will be payable at 28% upon sale of the property, in respect of such part of the capital gain as relates to the period for which ATED has applied to the property.

If you fail to complete the ATED return by 30 April 2018, various penalties will apply, which follow the self-assessment rules:

  • Initial penalty of £100 for the late submission of the return;
  • Daily penalties of £10 per day, after your return is three months late;
  • If your return is six months late, a further penalty of £300, or 5% of HMRC’s estimation of your liability to the ATED tax (whichever is higher) will apply. A second further penalty of £300, or 5% of HMRC estimation of your liability to the ATED tax, (again, whichever is higher) will apply if your return is twelve months late.

HMRC appear to be taking a strict position on this and are charging penalties for late returns even where there is no tax due. It is therefore important to review your position to consider whether the ATED regime might have any impact for your business. If you would like any help doing this, please do not hesitate to get in touch with us.

Steve Crompton
Partner – Head of Tax
direct dial: 01942 292541
mobile: 07790 840394
email: steve.crompton@jsllp.co.uk

Chris Barrington
Tax Partner
direct dial: 01942 292505
mobile: 07730 436070
email: chris.barrington@jsllp.co.uk