This Bulletin is aimed at limited companies who own, develop or let residential property
Annual Tax on Enveloped Dwellings (ATED)
The ATED charge is a tax on residential property which is owned through a corporate vehicle. It was introduced in 2013 primarily to prevent non-resident investors from avoiding Stamp Duty by owning their UK residence through a company. The legislation is drafted very widely however and has implications for UK investors too.
The charge affects UK residential property owned wholly or partly by a company. It also affects UK residential property owned through a partnership which has a corporate member. Each dwelling is considered individually, subject to conditions.
The tax is an annual charge, based on the property value on the later of 1 April 2022 or the acquisition date, for properties worth over £500k. Valuations apply for a period of 5 years, and this year with effect from 1 April 2023 the valuation date to be used has changed from 1 April 2017 to 1 April 2022 (see below). The valuation date of 1 April 2022 applies irrespective of when the property was acquired, unless acquired after this date. Therefore, as advised in Muras Matters last year, if a company has previously been submitting an ATED return, it will have needed to revalue the property as at 1 April 2022. HMRC do not require a formal valuation for the property, but it is expected that there is a reasonable basis upon which the valuation is arrived at.
The charge is a fixed amount based on the band in which the property value falls, and for 2023/24 will start at £4,150 for a property valued between £500k and £1 million. Please note that the market value may be substantially different to the book value in the company’s accounts.
In addition to the ATED charge there are two further taxes the property may be subject to:
- 15% Stamp Duty Land Tax on the acquisition of the house/flat (applies to all purchases over £500,000 since March 2014);
- Capital Gains Tax at 28% on disposals – note this is higher than the corporation tax rate which would otherwise apply.
Changes to Property Valuations
As noted above the 5 year valuation date has changed this year, with the applicable valuation date now being 1 April 2022 for all properties acquired on or before this date. Therefore companies should have obtained a valuation on 1 April 2022 of each property in readiness for this year’s ATED return.
Given the increase in property values since the 1 April 2017 valuation date, it is likely that some properties previously below the £500k limit will now fall within the ATED regime for the first time. Similarly some entities will be required to complete a return for the first time.
The ATED charge applies to residential dwellings individually. The definition of a dwelling is complex however HMRC have confirmed that care homes, hotels, boarding school accommodation etc. are NOT dwellings for this purpose.
Broadly, a property will be treated as a dwelling if all or part of it is used, or could be used, as a residence, for example a house or a flat. Any land that is occupied or enjoyed as part of the dwelling (for example, a garden) is also included.
A dwelling is defined not only as a property that is used as a dwelling but also one that is suitable for use as a dwelling. For example, a building that is currently not in use but was last used as a dwelling may fall within the scope of the rules. Whilst undeveloped land is essentially non-residential it may be classed as residential property for ATED purposes if a residential building is being built on it.
For a property consisting of a mix of one or more dwellings and non-residential property, for example, a shop with a flat above it, then special rules operate to effectively treat the person as having two separate interests, one in the single dwelling interest and one in the non-residential property.
It is therefore important to have a detailed understanding of the usage to which the property is put, in order to identify the correct ATED position.
Reliefs and Exemptions
There are a number of reliefs available which depend on the nature of the business of the company which owns the property. The reliefs cover property rental businesses, property developers, property traders, farmers etc. There is also a relief where the residence is occupied and used for the purpose of the trade however this is subject to several conditions.
The important point to note however is that these reliefs are not automatic and must be claimed. Even if the company is not liable to pay the annual charge, a nil return must still be submitted to HMRC.
Charitable companies are exempt.
ATED returns must be filed using HMRC’s ATED online service, and the annual charge paid, within 30 days of the start of a period which runs from 1 April to 31 March each year. An amended return must be filed if circumstances subsequently change during the year (for example, if the property is sold) in order claim a refund for tax overpaid.
Returns for the year to 31 March 2024 must therefore be filed by 30 April 2023 and any tax paid by the same date.
Where a residential property is acquired after 1 April 2023 for a cost of more than £500k then an ATED return will still be required for 2023/24 tax year. The deadline for filing a return in such circumstances is 30 days from the date the property is acquired. For new build properties, the reporting deadline is within 90 days of the earliest of first occupation or first becoming a dwelling for Council Tax purposes.
A company must register for the ATED online service in order to submit the return themselves or to appoint an agent who will submit it on their behalf. It is important to register for this new online service as soon as possible, particularly if the company wishes an agent to submit their ATED return, given the filing deadline of 30 April 2023.
A pre-banding check with HMRC is available where the property value is within 10% of an ATED band although this is not available if a relief is claimed.
Penalties apply even where no tax is due so reliefs MUST be claimed in order to avoid penalties. The following penalties apply:
- £100 late filing penalty;
- 3 months overdue – £10 daily penalty applies (subject to a maximum of £900);
- 6 months overdue – an additional charge of 5% of the tax due or £300, whichever is the greater.
Penalties will also be applied by HMRC for late payment of any ATED charge that is due.
This is a broad summary of a complex topic which could affect many investors. If your company owns a residential property worth over £500,000 then you need to seek advice, please contact our Tax Director Jenny Marks.
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