Annual Tax on Enveloped Dwellings (ATED)

By Adam Grannell.

ATED is a tax payable by companies or other entities that own high value residential property (a ‘dwelling’). It came into effect from 1 April 2013 and is payable each year.

Most residential properties (dwellings) are owned directly by individuals, but in some cases a dwelling may be owned by a company, a partnership with a corporate member or other collective investment vehicle. In these circumstances the dwelling is said to be ‘enveloped’ because the ownership sits within a corporate ‘wrapper’ or ‘envelope’.

Entities that meet the required criteria must complete an ATED Tax Return in respect of their ownership of the property:

  • It is a dwelling (see below for definition)
  • It is situated in the UK
  • It was valued at more than £2 million on 1 April 2012, or at acquisition if later

There are reliefs that could reduce the tax completely but these may only be claimed via completion of the ATED Return.

Budget 2014 announced a reduction in the threshold from £2 million to £500,000 to be introduced over 2 years.

From 1 April 2015 a new band will come into effect for properties with a value greater than £1 million but not more than £2 million with an annual charge of £7,000. For those persons who fall into this new threshold there’ll be a transitional rule where returns will be due by 1 October 2015 and payment by 31 October 2015.

From 1 April 2016 a further band will come into effect for properties with a value greater than £500,000 but not more than £1 million, with an annual charge of £3,500. For future years these charges will be indexed in line with the previous September CPI.

What is a dwelling?

ATED applies to residential properties (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’.

A dwelling includes gardens and grounds and any building within them, unless that building is being used for a purpose covered by a relief.

Some buildings are not deemed to be dwellings and so aren’t included under ATED, these include:

  • hotels
  • guest houses
  • boarding school accommodation
  • hospitals
  • student halls of residence
  • military accommodation
  • care homes
  • prisons

Valuation of property

For ATED the value of the dwelling is its value:

  • on 1 April 2012, if the interest in the property was owned at that date
  • each 1 April falling 5 years, or multiple of 5 years, after 1 April 2012
  • the acquisition date, if later than the above
  • at the date of entry on the Council Tax Valuation Lists (or Northern Ireland Valuation List) or when it’s occupied, whichever is the earliest, if the dwelling is a new property or an existing building that’s been altered so that it is to be a dwelling if that is later than 1 April 2012

The open market value of the property may be self-assessed or a professional valuation expert used if necessary. The valuation will be reported on the ATED return.

A valuation at 1 April 2012 will decide which ATED band the property will fall into for 5 years. This could change if the property is developed or falls outside ATED completely, or moves back in again. For example, it becomes a non-residential property and then residential again.

If HMRC challenge a valuation and find that it’s wrong, the person responsible for paying ATED may have to pay penalties as well as the increased ATED payable, plus interest for late payment.

Returns and payment

If a dwelling falls within the scope of ATED, then regardless of any reliefs that may apply, it is necessary to complete and send a return to HMRC.

The completed return and payment must be filed by 30 April at the beginning of each ATED period. An ATED period lasts for one year and begins on 1 April.

For the ATED period beginning 1 April 2014 and for all future years, the return and the payment will be due by 30 April. For example, for the ATED period 1 April 2014 to 31 March 2015, both the return and payment are due by 30 April 2014.

If a return is not completed and sent to HMRC, or it is late or contains mistakes penalties and interest may be charged.

How Inspire can help

If your company or partnership meets any of the above criteria then it is likely that you will need to file an ATED return over the next couple of months.

Inspire’s dedicated team have experience in completion of ATED returns, as well as circumstances that directly relate to the enveloping of residential properties including the removal of dwellings from their “wrapper”.

Should you wish to discuss this tax, or any other related issues, please contact Adam Grannell or Chris Downing on 01202 717 867 or by email [email protected][email protected].

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