Understanding the Annual Tax on Enveloped Dwellings (ATED)
What is the Annual Tax on Enveloped Dwellings (ATED), how is it calculated, what are your responsibilities and are there any exemptions and reliefs? We cover every aspect of this annual charge on residential property to help you understand your obligations.
Introduction to the Annual Tax on Enveloped Dwellings
The Annual Tax on Enveloped Dwellings (ATED) is a yearly charge payable on UK residential properties owned by a ‘non-natural person’, which, in most cases, means a company.
The ATED was introduced on 1 April 2013 and applies to properties with a value of more than £500,000. ATED is self-assessed and you can receive a penalty from HMRC if you fail to submit a return online for any chargeable period.
Understanding enveloped dwellings
A property is an enveloped dwelling for ATED purposes if it is used or can be used as a residence (for example, a house or flat) and owned by a ‘non-natural person’ (NNP). A non-natural person is a corporate entity, such as a company, limited liability partnership, trust or investment scheme.
To be classed as a dwelling, the property must be:
- Used exclusively or in part as a residence
- In the process of being adapted or constructed as a residence
If the property has partial residential use, the ATED only applies to the value of that part of the property. For example, a self-contained flat within a mixed-use property would be a separate dwelling for ATED purposes, as would any garden or grounds it includes.
The ATED charge and its importance
The Annual Tax on Enveloped Dwellings was introduced to tax the ownership of high-value residential property in vehicles that allow the property to be sold free of stamp duty. Effectively, it makes it less attractive for companies to hold high-value UK residential properties. There are some genuine reasons why a ‘non-natural person’ may own a residential property other than tax avoidance and exemptions do exist.
As an organisation, you must be clear on whether any properties you have an interest in are subject to ATED. It covers freehold and leasehold property, shares or interests in land and the right to receive rent. There can be multiple interests in a single dwelling, such as the leaseholder and freeholder, in which case, each organisation with an interest will need to be clear of its position.
Meeting your ATED reporting requirements
If your organisation owns or has an interest in a dwelling that falls within the Annual Tax on Enveloped Dwellings, you must submit a return and pay the associated tax by 30 April of that chargeable period. For example, for the chargeable period 1 April 2023 to 31 March 2024, your ATED return and payment will both be due by 30 April 2023.
If you acquire a dwelling during a chargeable period, you must file a return and pay what you owe within 30 days of the date of acquisition. For a newly built property, you must file your ATED return and pay what you owe within 90 days of whichever happens earlier:
- The property is first occupied; or
- Your property becomes a dwelling for Council Tax purposes.
As you must file your ATED return towards the beginning of the chargeable period, it may mean that an amendment needs to be made at a later date. That could be the case if you sell the property or the property becomes eligible for relief. Even if your property qualifies for relief, you must still file a return and claim the relief by the due date.
You can be given a penalty if you do not file your return or pay what you owe on time. You will incur an initial £100 penalty if you miss the filing date, with further ATED penalties charged after three and six months. Penalties also apply if you file an inaccurate return.
Exploring ATED reliefs and exemptions
Certain properties fall outside the definition of a dwelling for ATED purposes. They include:
- Hospitals
- Hotels
- Guest houses
- Boarding school accommodation
- Student halls of residence
- Care homes
- Military accommodation
- Prisons
Certain entities are also exempt from the ATED charge, such as charitable organisations, public bodies and bodies established for national purposes. If your property type or organisation falls outside of the scope of ATED, you are exempt and do not need to submit a return.
Some properties that qualify as dwellings are eligible for ATED relief. A dwelling may be eligible for relief if it is:
- Used in a property rental, property development or property trading business and it is, at no point, occupied by anyone connected with the company;
- Occupied by certain qualifying employees or partners;
- Open to the public for at least 28 days a year;
- Used as a farmhouse;
- Held by a financial institution in the course of lending;
- Owned by a regulated provider of social housing; or
- Available to Ukrainian refugees.
If you are eligible for ATED relief, you must submit a return to claim it.
Valuing your dwelling
To calculate your ATED charge, you’ll need to value your property. You must revalue your property every five years. If you have acquired a property after the last revaluation date – 1 April 2022 – you can use the value of the property when you acquired it instead.
The valuation is self-assessed, so you must value the property and report that figure to HMRC yourself. If the value is close to a threshold – £500,000, £1 million or £2 million, etc. – you should consider getting a professional valuation, as HMRC may charge a penalty if it looks at a valuation and finds it’s incorrect.
Calculating the ATED charge
If your dwelling does not qualify for relief or an exemption, you will pay an ATED charge at the following rates:
As long as the property has not been newly developed or acquired, the ATED charge will be payable by 30 April for any chargeable period.
Ensuring ATED compliance and seeking expert help
The Annual Tax on Enveloped Dwellings is a complex area where professional assistance can be beneficial. With substantial ATED penalties of 5% of the tax due, the cost of non-compliance is high. That’s particularly the case if you own multiple residential properties, as you must complete and file a separate return for each. Without professional help, you can also miss out on the ATED relief you are eligible for.
How Moore Kingston Smith can help
Our team has a wealth of experience helping residential, commercial and retail property clients thrive. If you are eligible to pay Annual Tax on Enveloped Dwellings, we can:
- Prepare and submit ATED returns, ensuring that all possible relief is claimed from the ATED charge;
- Where there has been non-compliance, help to bring your position up to date.
Read more in our Annual Tax on Enveloped Dwellings guide, find out how our business and corporate tax advisers can help you or contact our team.