ATED, or Annual Tax on Enveloped Dwellings, is a property tax paid by companies that own over £500,000 of residential property in the UK.
For companies that exceed the £500,000 threshold, an ATED return must be submitted on or after April 1st in any chargeable period.
ATED is a complex area of taxation, meaning it can easily be overlooked. We’ve put together this guide as an introduction to ATED tax, but it’s always best to speak with an independent tax advisor for help in structuring your investment.
ATED is a tax paid on single dwellings, rather than on the combined value of a commercially owned residential estate. As such, you should obtain a valuation for each affected property individually, including any entirely self-contained flats or apartments that share the same roof.
When paying HMRC ATED tax, the amount owed is based on a band system, rather than as a specific percentage of the valuation, with the lowest ATED rates paid on estates valued from £500,000 to £1 million.
This is calculated according to specific ATED valuation dates, which are defined as the most recent of any of the following:
The ‘initial valuation date’ is the date on which the property was acquired. The 5-year intervals (always on April 1st in a year ending with 2 or 7) are the ‘revaluation dates’.
A full definition of ATED tax is quite technical and forms several parts:
An enveloped dwelling, for the purposes of filing an ATED return, is a UK residential property owned completely or partly by a company, a partnership in which any partner is a company, or a collective investment scheme such as a unit trust or open-ended investment vehicle.
‘Dwelling’ means that the property could be used (or is used) as a residence, including flats and houses, and also including the grounds and gardens of the property.
Not all residential buildings are classed as ATED dwellings. Some of the main exceptions include:
A full list of property types that are not subject to paying Annual Tax on Enveloped Dwellings is available in the HMRC ATED technical guidance.
Once a property is determined to be subject to tax as an enveloped dwelling, it’s your responsibility to obtain an accurate valuation, and to use this to decide the ATED rates you need to pay.
As mentioned above, ATED valuation dates are based on when you acquired the property, with a fixed 5-year revaluation date.
You should ensure that you get a fair valuation for each property, based on an open market and a ‘willing buyer, willing seller’ basis. You may revalue the property if, for example, you sell part of the land and no longer hold as much of the value.
The specific ATED rates can change annually, with the most recent rates available on GOV.UK or from your property tax advisor.
For April 1st 2022 – March 31st 2023, the ATED valuation bands and rates are:
|£0 to £500,000
|No ATED to pay
|Over £500,000 to £1 million
|Over £1 million to £2 million
|Over £2 million to £5 million
|Over £5 million to £10 million
|Over £10 million to £20 million
|Over £20 million
If your valuation of your property is within 10% on either side of a band threshold, you may apply to HMRC for a Pre-Return Banding Check (PRBC). This is to make sure that they will accept your valuation, which can help you to avoid being charged a penalty later on.
The definitions provided above are not exhaustive. Black Brick can refer you to leading tax advisors for full guidance when buying a property.
However, let’s take a less technical look at some of the general background of ATED tax returns on enveloped properties in the UK.
ATED was introduced as part of the Finance Act 2013. It came into effect on April 1st of that year, using valuations from April 1st 2012 – the very first ‘initial date’ from which the 5-year intervals are calculated.
ATED was introduced as part of a package to make it less attractive to own high-value UK residential property through the use of structures i.e. a company, which would allow future owners to avoid or minimise taxes such as stamp duty land tax (SDLT).
ATED applies to UK residential properties owned by ‘non-natural persons’ (usually companies or equivalent) with a valuation over £500,000 on the open market.
ATED is calculated per property. ATED on multiple dwellings should be based on the individual valuations, with an ATED tax return filed for each property over the £500,000 threshold.
To file an ATED tax return, you or your HMRC agent (i.e. your accountant) should register with the ATED online service.
You’ll need to know:
Overseas businesses that need to pay ATED in the UK can also register for the online service, even if you don’t have a UTR allocated by HMRC.
ATED tax should be calculated per property, based on the open-market valuation and on the current ATED bands.
You should also be aware that residential properties purchased by commercial entities are also potentially subject to a higher rate of Stamp Duty Land Tax and to ATED-related Capital Gains Tax upon disposal.
ATED returns must normally be made within 30 days of acquiring a property, or within 30 days from April 1st in subsequent years.
In a small proportion of cases, ATED returns can be made for up to 90 days. This includes new dwellings and ‘dwellings produced from other dwellings’, as discussed in more detail in the technical guidance.
You can pay ATED tax via the same methods as other taxes. Be aware of the processing times for different methods and ensure your payment arrives on or before the last working day before the deadline – allow for weekends and bank holidays.
The expected processing times according to the HMRC ATED guidance are:
|Approve payment online
|Faster Payments (online/telephone)
|3 working days
|Cheque in the post
|3 working days
If your payment arrives late, you may be charged a penalty. As such, it’s important to remember to pay ATED tax not only annually in April, but particularly within 30 days of acquiring a high-value residential property for your business.
The question of whether ATED fees are tax deductible is a complicated one and best directed at your tax advisor.
However, it’s worth noting that in June 2017, the HMRC Capital Taxes Liaison Group Meeting discussed this specific issue.
In the notes from that meeting, HMRC said:
“Generally, HMRC would expect a genuine property business to be able to claim full relief from ATED. But occasionally there may be situations where relief doesn’t apply, perhaps because a ‘non-qualifying’ individual occupies a property and pays a commercial rent which in turn is included as income in the company accounts.
“This was raised with relevant colleagues who advise that normal principles would apply, and that for an ATED charge to be an allowable deduction it must be incurred ‘wholly and exclusively’ for the purposes of the property business. There is no rule that prevents ATED charges being deductible in such situations.”
In general though, it is likely that if your ATED fees were tax deductible, they would already be covered by one of the ATED exemptions categories listed below.
HMRC lists nine specific ATED exemptions:
ATED exemptions are not automatic: you should complete an ATED return for the property in order to claim the relief. However, you can submit a single relief claim for multiple properties, if they all fall within the same ATED exemption category.
If you’re expanding your portfolio, Black Brick can find and secure the perfect properties, alongside referring you to leading tax specialists who will help you get the most from your investment.
Contact our team today to learn more.
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