Annual Tax on an Enveloped Dwelling

The Annual Tax on Enveloped Dwellings, ATED for short is one of the newest taxes having been introduced in 2013 and applies where companies hold residential property within a limited company or limited partnership.

With the rise of tax saving opportunities available by holding residential property in this way and rapidly rising house prices it soon became an issue with HMRC missing out on potential tax revenue. Hence on 1 April 2013 the ATED charge was introduced to try and counter this.

Basic Principles of ATED

  • For each individual UK residential property above a certain value (currently £500k) owned by a limited company there would be an annual charge. Where there is a group such as a block of flats a value needs to be ascertained for each
  • The annual charge is for the period 1 April to 31 March each year (g. 1 April 18 to 31 March 19) the level of which is determined by the value of the property at the later of:
    • Date of purchase, or
    • 1 April 2017
  • To avoid the need for annual valuations the value is set until the next revaluation date which happens every five years (next revaluation: 1 April 2022). This also has the effect that if a property goes up in value between the valuation dates it could be drawn into the scheme when previously it was outside it.
  • A return and payment is required for each property within the earlier of:
    • 30 April
    • 30 days after a “qualifying” property is purchased.
  • There are reliefs which can be claimed to reduce the charge but need to be made via submitting an ATED return.
  • There are penalties for non or late submission of ATED returns even if the reliefs reduce the charge to nil.

Current Rates

The current rates payable for 1 April 18 to 31 March 19 are:

Single Dwelling Value Annual Charge
More than £500,000 to £1 million £3,600
More than £1 million to £2 million £7,250
More than £2 million to £5 million £24,250
More than £5 million to £10 million £56,550
More than £10 million to £20 million £113,400
More than £20 million £226,950

Company Connections

Where an individual who has the right to occupy the property is connected with the company which owns the property then this can restrict any of the reliefs outlined in the next section.

Connection with a company can happen in many different ways but the most common one here is where an individual (and any family members) has control of the company. As such care needs to be taken as to who has a right to occupy in order to maximise the reliefs available.

Available Reliefs

There are a number of reliefs available which reduce the ATED charge on a daily pro-rata basis if on any day in the chargeable period the property falls into one of the following categories.

  • Is not owned
  • Part of a property rental businesses
  • Open to the public
  • Held for development by a property developer
  • Held as stock by a property trader for resale
  • Held by a financial institution with a view to sale to settle an outstanding debt.
  • Is owned by a trading company to provide living accommodation. g. a company owned flat for overseas employees to stay in while in the UK
  • A farmhouse occupied by current or former farmworkers
  • Owned by a provider of social housing

The relief is claimed when making the original submission of the ATED return or by amending an ATED return already made. If a subsequent relief claim indicates that there has been an overpayment of the ATED charge then any excess will be refunded once the claim has been processed.

Am I affected?

If you can answer yes to all of the following then you are affected and will be required to register for and submit an ATED return before 30 April 2018. This is even if no tax is due because 100% relief is claimed.

  • Are you involved in a company either as a director or shareholder?
  • Does the company own any UK residential properties?
  • Is the value1 of any one single dwelling owned greater than £500k?

1 value at later of date of purchase or 1 April 17 

Next Steps

The ATED scheme is fairly complex and the above has only concentrated on its main points. If after reading you feel that you may be affected by the ATED charge and would like any assistance in submitting an ATED return or are simply not sure and want some further assistance then please contact Matthew Harrison (mh@cottonsllp.com) or your usual Cottons contact.

Chartered Accountants and Tax Advisors

Cottons Chartered Accountants are a top 100 firm with branches in the Midlands and the South. If you are looking for an accountant in London, Daventry, Rugby, Northampton or surrounding areas then get in touch with your local branch to speak with a friendly and knowledgeable advisor.

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