UK Annual Tax on Enveloped Dwellings (ATED)

UK Annual Tax on Enveloped Dwellings (ATED) - Crowe Horwath Ireland

What is ATED?

ATED is an annual tax charge, payable mainly by companies that own UK residential property valued at Stg £500,000 or above.

Who is affected?

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 not affected?

Companies that own properties in their capacity as a trustee of a settlement are not included in 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?

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 applies to dwellings that are physically located in the UK. A dwelling includes gardens, grounds and any building within them.

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.

How much do I pay?

The ATED annual chargeable amounts are fixed charges as opposed to percentage charges. The charges are increased annually to keep pace with inflation in line with rises in the Consumer Prices Index (CPI).

The 2018-19 ATED annual charges are:

Property Value Annual ATED Payable
£500k to £1m £3,600
£1,000,001 to £2m £7,250
£2,000,001 to £5m £24,250
£5,000,001 to £10m £56,550
£10,000,001 to £20m £113,400
> £20,000,001 £226,950

The threshold whereby ATED would apply has decreased significantly since its introduction in 2013 from Stg £2m to Stg £500k. As a result, some enveloped dwellings not previously subject to the ATED regime may now enter fall within the charge either because the value of asset has increased above the threshold or because of the threshold reduction.

What value do I use?

For the period beginning 1 April 2018, it will be the value at 31 March 2017, or purchase price, if acquired later which will determine whether the property falls within the ATED regime.

If the company has owned the property for some time and you believe that the current value is likely to be in the region of £490,000- £500,000 it might be worth taking a prudent approach and seek a professional valuation, otherwise the company may be open to a challenge from HM Revenue & Customs.

Properties are required to be revalued every five years.

Are there reliefs available?

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

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

When do I pay?

For the period from 1 April 2018 to 31 March 2019, the ATED return is due by 30 April 2018. If you do not file a return, then even if one of the reliefs apply you will be charged penalties for late-filing. If you do not pay the tax on time then you will also pay interest charges on the unpaid tax.

If you make a disposal of a property part-way through the year and you have already paid your ATED charge for the full year then you should be able to claim a refund of part of the annual charge, since it is calculated on a daily basis.

Should you have any queries in relation to the operation of the ATED system or would like some assistance to complete and submit the relevant returns, please contact a member of our tax team.