30 January 2019

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

Does your company own UK residential property valued at £500,000 or above? 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 that own UK residential property valued at £500,000 or above.

The ATED regime also applies to:

  • A partnership with a corporate member(s), and
  • A collective investment scheme, such as a unit trust or open-ended investment company.

If a property falls within ATED, an annual return must be submitted to HMRC along with the tax payment. The return for the period from 1 April 2019 to 31 March 2020 is based on property valued on 1 April 2017 (or the purchase price if acquired later). The ATED return for this period is due by 30 April 2019.

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. If the property comprises flats, then each flat is valued separately.

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
  • Prisons

ATED charges and reliefs

As mentioned above, the filing date for the ATED return is 30 April 2019. The payment date of the charge (if you are chargeable to ATED) is also 30 April 2019.

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 2019. These returns can be completed and submitted to HMRC online. In order to be able to claim a relief against ATED, the property must be either:

  • Let to a third party on a commercial basis and not occupied (or available for occupation) by anyone connected with the owner at any time;
  • Open to the public for at least 28 days a year on a commercial basis i.e. stately homes;
  • Being developed for resale by a property developer;
  • Owned by a property trader as the stock of the business or for the sole purpose of resale;
  • Repossessed by a financial institution as a result of its business of lending money e.g. equity release schemes;
  • Used by a trading business to provide living accommodation to employees, where the employee has less than 10% interest in the company e.g. key executives working in the UK;
  • A farmhouse occupied by a farm worker or a former long-serving farm worker;
  • Owned by a registered provider of social housing.

There are also exemptions for:

  • Residential property owned by a charity and held for charitable purposes;
  • Properties held by public bodies, and bodies established for national purposes;
  • Properties conditionally exempt from inheritance tax.

If you fail to complete the ATED return by 30 April 2019, 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 12 months late.

HMRC appear to be taking a very strict position on this and is charging penalties for late returns even where there is no tax due. It is therefore important for you to review your own position to find out whether the reduced ATED threshold has any impact for your business. If you’d like any help doing this, please do not hesitate to get in contact.