Annual Tax on Enveloped Dwellings (ATED) was introduced on April 1st 2012. It’s designed to deter companies and mixed partnerships (“non-natural persons”) from acquiring certain residential property, and was one of a number of government measures around a similar theme. The changes were made to close a loophole whereby buying residential property via enveloped dwellings or corporate structures was a method of avoiding stamp duty.
Initially when the legislation came in, ATED applied to residential property with a market value, or with a purchase price if acquired post April 1st 2012, in excess of £2m. Over the years we have seen this threshold reduce to £1m and now to its current limit of £500,000, which took effect from April 1st 2016.
When does ATED apply?
Non-natural persons owning residential property fall within the charge to ATED if all of the following conditions apply:
They hold a chargeable interest in a single UK dwelling
With a value > £500,000
The dwelling is owned wholly or partly by a company; a partnership with a corporate partner; or a collective investment scheme.
The charge applies to both UK and non-UK resident entities that meet all of the above conditions.
What is a dwelling?
A dwelling is defined as a property of which all or part is used or suitable for use as a residence or is in the process of being constructed or adapted for such use, i.e. a house or flat.
Land that is or at any time intended to be occupied or enjoyed with the dwelling as a garden, land or any building or structure on such land is taken to be part of the dwelling. This includes tennis courts, garages, swimming pools, and summer houses, which all form part of a dwelling for ATED.
For mixed use properties, only the value of the residential element needs to be considered for ATED. Any temporary unsuitability for use is ignored for the purpose of the charge.
How is the ATED charge determined?
The tax payable under ATED is calculated using a banding system based on the value of the property. The value of the property is taken as the market value of the property as at April 1st 2017 for property acquired on or before April 1st 2017 (previously April 1st 2012). For any property acquired post April 1st 2017, the purchase price is used. This value is then generally frozen and used for the next five years. The first revaluation for ATED took place on April 1st 2017 and applies to chargeable periods commencing from April 1st 2018 (see table to the right).
Exclusions from the charge
The legislation also specifically excludes a number of bodies or specific dwellings from the charge to ATED. Some of these are as follows:
- Charitable companies
- Public bodies
- Bodies established for charitable purposes
- Dwellings conditionally exempt from inheritance tax
- Residential property for school pupils or students
- Hotels or similar establishments
- Care homes
- Military homes.
If the residential property falls within the above, no ATED return is required to be prepared and filed.
Reliefs from the ATED charge
There are certain reliefs available from the ATED charge. These include properties let on a commercial basis to a third party, residential properties held for employee accommodation and providers of social housing. This list is not exhaustive, so it’s definitely worth speaking to an expert to determine eligibility for any reliefs.
Returns and Penalties
ATED is complicated. There are different compliance deadlines depending on when the non-natural person acquires a dwelling and these apply equally whether tax is due or a relief is being claimed.
Generally, the ATED return and tax liability are submitted for a year in advance by reference to the annual chargeable period, which runs from April 1st to March 31st. The return and tax must be submitted by April 30th at the latest or within 30 days of acquisition if the dwelling is acquired in the year. The charge therefore assumes that the property will be held for that year ahead. The 2018/19 ATED return for a property held on April 1st 2018 should have been filed and the tax charge paid by April 30th 2018, and therefore a property could then have moved into a different banding.
It is important to remember that even if there is no ATED charge because of the availability of one of the reliefs, a return must still be submitted. Delay in filing a return can result in penalties of up to £1,600 after a year, with tax geared penalties for the late payment of the ATED tax, so if you have missed the deadline, act quickly!
How we can help
Non-natural persons owning property need to consider the following points as a guide as to whether a return is required:
Is the dwelling non-residential?
Is the value below £500,000?
Is the entity or building specifically exempt?
If the answers to all the questions above are no, then an ATED return is required.
At MHA Carpenter Box, our Tax Services Team can review your records and help you determine whether you need to file an ATED return, whether the building is exempt or whether one of the reliefs apply.
For more information, please contact Dan Hobbs on 01903 234094 or sign up to Carpenter Box's monthly newsletter service at www.carpenterbox.com/newsletter