Annual Tax on Enveloped Dwellings (“ATED”)

ATED is an annual tax charge payable by onshore and offshore corporate entities, including companies, partnerships with corporate members, or other collective investment vehicles, such as unit trusts or open ended investment companies, that own wholly or partly, UK residential properties (“dwellings”) valued above certain amounts.

In these circumstances the dwelling is said to be ‘enveloped’ because the ownership sits within a corporate ‘wrapper’ or ‘envelope’.

Who is affected?

Corporate entities that hold UK residential properties, which are each valued over £500k are affected. 

Who is not affected?

Companies that own properties in their capacity as a trustee of a settlement are not included in ATED. If a company holds property as a trustee of a bare trust it’s the person who beneficially owns the property who may be liable to ATED. Corporate entities that have a property portfolio which exceeds the threshold, but no single dwelling is valued above the threshold at the relevant time, will not be liable to ATED.

What is a dwelling?

ATED applies to dwellings that are physically located in the UK. A dwelling may be all or part of a residential or mixed-use property and includes properties ‘capable of being a dwelling’.

Undeveloped land is essentially non-residential but may be residential property if, at the effective date, a residential building is being built on it. Where, at the effective date, an existing building is being adapted or marketed for, or restored to, domestic use, it is treated as a residential property.

Sometimes a dwelling is part of a larger, mixed-use property that has parts not used for residential purposes. Only the residential part would have ATED payable on it. The residential part will need to be valued to work out which ATED band it falls into.

A dwelling includes gardens, grounds and any building within them.

If a property consists of a number of self-contained flats, each flat will usually be valued separately. However, if there’s more than one dwelling in a property and they’re owned by a company or person connected with the company, they’re added together and looked at as a single dwelling, where there’s internal access between the two.

Two dwellings in adjoining buildings with internal access between them are also treated as one dwelling for ATED.

Where companies and individuals connected to the company own multiple interests in a dwelling, these will be added together for ATED purposes. This could be shareholders or their relatives or beneficiaries of settlements where the dwelling is owned by a company that’s owned by the trustees.

An example could be where the freehold interest is owned by one person (the company) and a leasehold interest is owned by another (perhaps an individual connected to the company).

Some buildings are not considered to be dwellings and aren’t included under ATED. Examples of these are hotels, guest houses, boarding school accommodation, hospitals, student halls of residence, military accommodation, care homes and prisons.

Charges

The annual chargeable amounts for ATED increase annually in line with the Consumer Prices Index (CPI).

Property Value Annual 
 £500K to £1m  £3,500
 £1m to £2m  £7,000
 £2m to £5m  £23,350
 £5m to £10m  £54,450
 £10m to £20m  £109,050
 >£20m  £218,200

 

 ATED applies on a proportionate basis (the ATED you pay will be calculated by reference to the number of days in the year the property falls within ATED) if you only own the dwelling for part of a year or you change how you use the property so that it moves into or out of ATED. Properties are valued as at their 2012 value or if purchased after this date as at the date of purchase. HMRC require properties to then be valued every five years from 2012. Therefore, the next valuation date will be 1 April 2017.

ATED Reliefs

There are reliefs that might mean you don’t have to pay any ATED. However, you can only claim these by completing and sending an ATED return. A separate ATED return will be required for each relief claimed.

A dwelling might get relief from ATED if it is:

  • let to a third party on a commercial basis and isn’t, 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 - if part of a property is occupied as a dwelling in connection with running the property as a commercial business open to the public, the whole property is treated as one dwelling and any relief will apply to the whole property;
  • part of a property trading business and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner;
  • for the use of employees of the company, for the company’s commercial business and where the employee does not have an interest (directly or indirectly) in the company of more than 10%, the employee’s duties must not include services for any present or future occupation of the property by someone connected with the company, the relief is also available where a partner in a partnership does not have an interest of more than 10% in the partnership;
  • a farmhouse, if it is occupied by a qualifying farm worker who farms the associated farmland, a former long-serving farm worker or their surviving spouse or civil partner;
  • a dwelling acquired by a financial institution in the course of lending;
  • owned by a provider of social housing

What do you need to do if affected?

An ATED return will need to be completed and payment made by 30 April each year. ATED periods run from 1 April to 31 March each year.

If your dwelling first falls within ATED on a date after 1 April in an ATED period, the return and payment are due within 30 days where purchased or 90 days where the dwelling is newly built. If a newly acquired or built dwelling qualifies for an ATED relief and this relief has already been claimed in the chargeable period, then no further return will be required to be submitted.

If you don’t complete and send HMRC a return or payment, or you send it late or make a mistake on it, you will have to pay a penalty and may have to pay interest.

If you know you might need to pay ATED for a dwelling then you need to complete and send a return. If there’s a relief available that means that you don’t have to pay ATED, you can only claim it by completing and sending a return to HMRC. A late filing penalty will still apply even if there is a relief that reduces the liability to nil.

If you own a number of dwellings, each of which is liable to make a payment of ATED, you’ll need to complete one return per dwelling. So where there’s a liability to pay ATED, one return must be completed per dwelling.

Have you received an ATED penalty notice or paid an ATED penalty recently? You may not be liable for this penalty and if you have already paid, you could be eligible for a refund. Read more.

Assistance
If you are affected by ATED and require assistance or tax advice, please contact one of our team, who will be happy to assist you.

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