Annual Tax on Enveloped Dwellings (ATED): What it is & how can it affect you?

Property, Tax

Property

Jenny Weeks from the Price Bailey Tax Team explores the details of the Annual Tax on Enveloped Dwellings and how it could affect your position.

What is The Annual Tax on Enveloped Dwellings (ATED)?

The Annual Tax on Enveloped Dwellings (ATED) was originally introduced in 2013 as part of a range of measures to make indirect ownership of high-value residential property in the UK through corporate vehicles – officially termed ‘non-natural persons’ – less attractive to investors looking to avoid or minimise taxes when disposing of their property and driving up the residential property market. The legislation applies to both UK and overseas entities.

But ATED has a sting in the tail; all companies owning properties that fall within the scope of ATED (unless exempt, see below), must report this to HMRC annually. There are a small number of exemptions from ATED, and there are also quite a few instances whereby relief can be claimed from the ATED charge – but although there may be no tax to pay, the owners of such properties still need to file a ‘nil return’ (relief declaration) to HMRC. Businesses which fail to do so can find themselves at the wrong end of quite a harsh penalty regime.

So how does ATED work?

The tax applies to residential properties in the UK which are held within ‘corporate envelopes’, including ownership by companies, partnerships with corporate partners, and collective investment schemes. To determine whether a property is liable for ATED, there are three key questions.

1. Is the property a ‘dwelling’?

HMRC’s guidance on ATED defines a property as a dwelling if: “All or part of it is used, or could be used as a residence, for example a house or flat. It includes any gardens, grounds and buildings within them.” HMRC has set out some specific properties that are not regarded as dwellings. These include:

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

None of these properties need a relief declaration return.

2. Does the value of the property exceed the threshold?

The current threshold is a market value of £500,000. The market value for ATED purposes is based on the property’s value at 1 April 2012 or, if you bought the property after that date, its market value at acquisition. This threshold is in place for returns for 2016-17 and 2017-18, having been reduced from the previous threshold of £1 million for returns in 2015-16.

If the property consists of multiple dwellings, such as a block of flats, then the threshold will apply to each individual dwelling, rather than the value of the block overall.

It’s also important to note that the valuation for ATED purposes lasts for five years, The previous valuation date used was 1 April 2012, therefore a revised valuation will need to be used from 1 April 2017, which will apply to returns from 2018-19 onwards.

3. Is the owner exempt or can relief be claimed from ATED?

Certain types of organisation owning residential property are regarded as exempt from ATED. These include charitable companies, public bodies (such as county or district councils and NHS trusts), and specific bodies established for national purposes (e.g. Historic Buildings)

If none of the above exemptions or exclusions apply, you will need to submit an ATED return to HMRC.

However, you may be able to claim relief from ATED in respect of your property/properties. For this we recommend you seek advice. Below are some of the properties that qualify for relief from the charge – but whilst there may be no tax to pay, they will still need a relief declaration return submitted to HMRC:

  • property held as part of a rental business, which isn’t occupied (or available for occupation) by anyone connected with the owner
  • property open to the public
  • dwellings owned by a property developer
  • dwellings owned by a property trader
  • property acquired by a financial institution as a result of lending money
  • dwellings used for trade purposes, providing accommodation to certain qualifying employees
  • a farmhouse occupied by a farm worker
  • property owned by social housing providers.

If none of the above exemptions or reliefs apply, then the property is chargeable to ATED and a chargeable ATED return will be due to HMRC. The charge you will be liable to pay is based on the value of your property, and the chargeable amounts for returns for 2017-18 are as follows:

  • Property value:  Annual charge
  • £500,000 up to £1 million:  £3,500
  • £1 million up to £2 million:  £7,050
  • £2 million up to £5 million:  £23,550
  • £5 million up to £10 million:  £54,950
  • £10 million up to £20 million:  £110,100
  • More than £20 million:  £220,350

Payment, returns and penalties

If you believe you are exempt we would recommend confirming this with your advisor. If you believe you will need to make either a ‘nil to pay’ or chargeable return or submit a payment in relation to ATED, your accountant or financial agent should have already raised the issue with you. The deadline for 2017-18 ATED returns, including relief declarations, on any property that was within the ATED regime on 1 April 2017, was 30 April 2017.

Thinking of acquiring a new property? For any property you acquire which comes within the scope of ATED after 1 April, you will need to submit a return or relief declaration within 30 days of acquisition, while the deadline for new-build properties is within 90 days of the date it is first occupied (or first becomes a dwelling for council tax purposes).

If you fail to submit a relief declaration return (or a return on which payment is due), you will face a penalty. And if an ATED payment is due, there may be further interest and penalties if paid late.

It’s crucial then that, even if you believe the property owned by your company or business is entitled to full relief from ATED and you owe no tax, you submit a return to HMRC.

This post was written by Jenny Weeks. For further information or help feel free fill in the form below.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

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