The rules on Annual Tax on Enveloped Dwellings (ATED) can be technical and complex. The following ‘at a glance’ guide for those liable to pay ATED looks at the rules and how these work in practice, including what ATED is and when this tax applies, what tax relief is available and how this is claimed, when to value a property for ATED purposes, the ATED filing and payment requirements, and the consequences of failing to meet the filing and payment deadlines.
What is Annual Tax on Enveloped Dwellings (ATED)?
Annual Tax on Enveloped Dwellings (ATED) is a tax that is charged on UK dwellings held by a Non-Natural Person (NNP) where the value of the property is above the relevant threshold. It is essentially a tax payable mainly by companies that own UK residential property of at least a certain value, although this value has been increasingly reduced by HMRC. When ATED was introduced on 1 April 2013, the threshold amount was £2 million. The threshold has since been reduced, firstly to £1 million from 1 April 2015 and then to £500,000 from 1 April 2016.
Most dwellings are owned directly by individuals, where the ATED does not apply to residential property that is owned by either a single or several individuals. However, in some cases, a dwelling may be owned by a company or another type of NPP. In these circumstances, the dwelling is classed as ‘enveloped’ because the ownership sits within a corporate wrapper or envelope. To fall within the scope of the ATED regime, a property must therefore be:
- a dwelling located in the UK
- valued at more than £500,000 (for returns from 2016 to 2017 onwards), £1 million (for returns from 2015 to 2016 onwards) or £2 million (for returns from 2013 to 2014 onwards)
- owned partly or completely by either a company, a partnership where any of the partners is a company, ie; a partnership with a corporate partner, or a collective investment scheme, such as a unit trust or an open-ended investment vehicle.
For ATED to apply, the NNP must hold a ‘chargeable interest’ in the property. A chargeable interest means any estate or interest, or a right or power in or over land in the UK, as well as the benefit of either an obligation, restriction or condition affecting the value of any such estate, interest, right or power. Under the ATED regime, this is known as a ‘single dwelling interest’. The nature of this interest is widely defined and not only covers freehold and leasehold interests, but also shares or interests in land and the right to receive rents.
What is a ‘dwelling’ for ATED purposes?
ATED is only charged to NNP’s who own a dwelling. A ‘dwelling’ is a property that is either:
- used all or in part as a residence
- suitable for use as a dwelling, or
- being adapted or marketed for, or restored to domestic use.
Under the ATED rules, a property is a ‘dwelling’ if all or part of that building is used, or could be used, as a residence, for example, a house or flat, and includes any gardens, grounds or buildings 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.
However, certain residential properties are not classed as dwellings and are not, therefore, within the charge to ATED. These include hotels, guest houses, student halls of residence, boarding school accommodation, military accommodation, care homes, hospitals and prisons.
How is the amount of ATED assessed?
The ATED is an annual tax charged in respect of ‘chargeable periods’ running from 1 April to 31 March (inclusive), based on the valuation band into which the qualifying dwelling falls. The annual chargeable amounts for ATED also increase annually in line with the Consumer Price Index. The ATED amounts are as follows:
ATED 1 April 2023 to 31 March 2024 |
|
Valuation |
ATED chargeable amount |
| £500k-£1m | £4,150 |
| £1m-£2m | £8,450 |
| £2m-£5m | £28,650 |
| £5m-£10m | £67,050 |
| £10m-£20m | £134,550 |
| £20m+ | £269,450 |
ATED 1 April 2022 to 31 March 2023 |
|
Valuation |
ATED chargeable amount |
| £500k-£1m | £3,800 |
| £1m-£2m | £7,700 |
| £2m-£5m | £26,050 |
| £5m-£10m | £60,900 |
| £10m-£20m | £122,250 |
| £20m+ | £244,750 |
ATED 1 April 2021 to 31 March 2022 |
|
Valuation |
ATED chargeable amount |
| £500k-£1m | £3,700 |
| £1m-£2m | £7,500 |
| £2m-£5m | £25,300 |
| £5m-£10m | £59,100 |
| £10m-£20m | £118,600 |
| £20m+ | £237,400 |
Where a company, or other NNP, owns a qualifying dwelling for a shorter period than 1 April to 31 March, then the chargeable period will be 1 April to the date it no longer owns the interest, for example, 1 April 2022 – 28 January 2023. Furthermore, where a liability arises in only part of the year, where a dwelling has been acquired part way through a chargeable period, then only a proportion of the annual amount payable will again need to be paid.
When is a property valued for ATED purposes?
The taxable value of a single-dwelling interest is its market value at the end of the most recent valuation date, where properties are revalued for the purposes of ATED every 5 years.
Other valuation dates between the fixed 5 year valuation dates can occur, for example, if the value of a dwelling is increased through a land transaction, for example, where more land is acquired or a lease extended. However, a dwelling will not otherwise need to be re-valued, other than at the 5 year fixed valuation date, for example, as a result of improvements or movements in the value from market fluctuations. This means that if the dwelling is worth £500,000 or less as at the last valuation date, there will be no ATED liability. However, any property that falls around this valuation, or is likely to have increased in value, regardless of the reason, may fall within the scope of the ATED regime at the next valuation date.
The fixed 5 year valuation dates are as follows:
- For years up to and including 2017-18, the taxable value is the 1 April 2012 valuation, or if acquired after 1 April 2012, its cost
- For 2018-19 and the following four years, the taxable value is its value at 1 April 2017, or if acquired after 1 April 2017, its cost
- For 2023-24 and the following four years, the taxable value is its value at 1 April 2022, or if acquired after 1 April 2022, its cost.
Generally, the amount of ATED payable will depend on the value of the qualifying dwelling at certain fixed valuation points, although different rules can apply for mixed use, more than one dwelling and multiple interests in properties.
ATED filing requirements
If a company or NNP is liable to pay ATED, it will need to complete and submit an ATED return on or after 1 April in any chargeable period. For existing properties, ATED is payable annually in advance by 30 April and a return must also be filed by that date. Companies and NNP’s falling within the scope of the ATED rules can register themselves, and file their return using the ATED online service at GOV.UK, or appoint an agent to act on their behalf.
On acquisition of a qualifying residential property by a company, or other type of NNP, an ATED return and payment is due within 30 days of the acquisition date. An annual ATED return and tax payment will then fall due each year by 30 April, for example, for the year 2022-23, the return and payment due date was 30 April 2022.
Claiming ATED relief
There are various reliefs available from ATED, which may mean that no charge is payable. However, these must be claimed by way of an ATED return, working on the basis of ‘relievable days’, although this can become complicated if claiming relief for only part of the year.
Examples of when relief from ATED applies, although this list is not exhaustive, include:
- where a dwelling is being developed and resold as part of the property development trade
- where a dwelling is owned by a property trader as stock for the sole purpose of resale
- where a dwelling is held by a property rental business and let out on a commercial basis
- where a dwelling is held by trading companies for the use of employees in the trade, and
farmhouses occupied by working farmers.
However, relief is not available where a ‘non-qualifying individual’ is permitted to occupy the dwelling in question. A non-qualifying individual covers a wide range of individuals, including an individual who is entitled to an interest in the property. A few organisations are exempt from the charge, but this is limited to charities, and public and national bodies.
Penalties for ATED breaches
When it comes to ATED, as with any other tax, penalties can be imposed for late filing, late payment and errors or mistakes. Penalties relating to ATED fall under the penalty regimes under schedules 55 and 56 of the Finance Act 2009, relating to failure to make returns and failure to make payment on time, together with Schedule 24 of the Finance Act 2007 relating to penalties for errors leading to a loss of tax.
The penalties for missing the filing deadline are as follows:
- An initial penalty of £100 on the day after the date the ATED return is due
- Daily penalties of £10 per day for 90 days after the ATED return is 3 months late
- A further penalty of £300 or 5% of HMRC’s estimate of the ATED liability, whichever is the higher, after the ATED return is 6 months late
- A second further penalty of £300 or 5% of HMRC’s estimate of the ATED liability, whichever is the higher, after the ATED return is 12 months late.
For example: a company acquires a £1 million property on 1 January 2022, where it must make its first ATED return and payment by 1 February 2022. It must then make its second ATED return for the 2022-23 year by 30 April 2022, as this is payable in advance. If it fails to file either return until 1 July 2022, it will have missed two filing deadlines, resulting in £800 in penalties. This is because the first return was due 01/02/2022 but not made until 01/07/2022, where the first missed deadline will incur an immediate £100 penalty, plus daily penalties for 60 days @ £10 per day for being 5 months late, making a total of £700. The second return was also late, incurring an additional £100 penalty for being filed 2 months late.
If the taxpayer is held to be deliberately withholding information that would enable HMRC to assess the tax due, the percentage rate of the second further penalty may be increased to as much as 100% of the ATED estimated to be due as of that date. However, this percentage rate can be reduced, depending on the level of assistance given to HMRC in resolving the matter.
The penalties for failing to pay the ATED in full and on time are an initial penalty of 5% for tax unpaid at the penalty date, and two further penalties of 5% each for tax unpaid at 5 and 11 months after the penalty date. The penalty date is 31 days after the due date. A tax-geared penalty can also apply when a taxpayer makes a careless error or mistake in an ATED return.
Within 30 days of any penalties being imposed, a request can be made to have the case reviewed by an HMRC officer who has not been involved in the matter. The officer previously dealing with the matter can also be asked to take into account new information. Alternatively, the taxpayer can ask for an independent tribunal to hear an appeal and decide the matter.
The grounds for lodging an appeal will depend entirely on the facts and circumstances of the case, but can include where the taxpayer has a reasonable excuse for any failure, the penalty fails on technical grounds or HMRC has not considered any mitigating circumstances. The amount of the penalty may also be appealable, and penalties for errors may be suspended.
ATED FAQs
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Legal disclaimer
The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal or financial advice, nor is it a complete or authoritative statement of the law or tax rules and should not be treated as such.
Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission.
Before acting on any of the information contained herein, expert professional advice should be sought.
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services Limited - a Marketing & Content Agency for the Professional Services Sector.
