Owning a UK property via a corporate structure? The annual tax on enveloped dwellings (ATED) could apply to you if the value exceeds £500,000. This guide demystifies ATED, highlighting eligibility, calculation, and compliance procedures without the jargon. Stay ahead of due dates and avert potential fines with our expert insights.
When selling a property subject to ATED, you are required to pay capital gains tax (CGT), which can involve complexities such as special provisions and potential double taxation.
Key Takeaways
- The Annual Tax on Enveloped Dwellings (ATED) applies to residential properties in the UK worth over £500,000 owned by non-natural persons, such as companies and partnerships with a corporate partner. The chargeable period runs from April 1 to March 31, and returns and payments are due by April 30 each year.
- ATED liabilities are determined by property valuations that fall within specific value bands and appropriate reliefs or exemptions can be claimed to reduce tax obligations. Revaluations of the property are mandated every five years, with an initial valuation required at the threshold dates determined by HMRC.
- Compliance with ATED involves maintaining accurate records, meeting reporting requirements by specified deadlines to avoid penalties, and staying informed about legislation changes. Property owners often seek professional advice to ensure accuracy and compliance.
- When selling a property subject to ATED, there is a requirement to pay capital gains tax, and there is potential for double taxation.
ATED, as an annual tax, is applicable to UK residential properties owned by non-natural persons, primarily companies. It is calculated based on property value, considering factors such as any available reliefs or exemptions. ATED covers a wide range of property interests, including freehold and leasehold property, shares or interests in land, and the right to receive rent from a dwelling.
The understanding of ATED chargeable period is crucial as it affects the assessment of whether multiple interests in a single dwelling are subject to the tax.
Defining non-natural persons
In the context of ATED, non-natural persons refer to corporate entities. These include:
- Companies
- Limited liability partnerships
- Trusts
- Investment schemes
So, if you’re a property owner and your property is owned through any of these entities, you need to be aware of your obligations under the ATED legislation.
Chargeable period and deadlines
The chargeable period for ATED spans from 1 April to 31 March of the subsequent year. This means you need to file annual ATED returns and pay annual tax, the ATED tax charge, by 30 April, following the start of the chargeable period.
It’s important to keep track of these deadlines to avoid incurring penalties.
Properties subject to ATED
ATED applies to UK residential properties including rental properties, valuable freehold interests, and properties held as trading stock that meet the high value criteria. However, not all properties are subject to ATED. Many types of accommodations, such as hotels, guest houses, and student halls of residence, are exempt from ATED. This also includes hospitals, military accommodations, prisons, and care homes.
Eligibility Criteria for ATED
Your property must be valued at over £500,000 in order to be in scope for ATED. This requirement determines if a property is subject to the ATED. Whether you are a property tycoon or a small business owner with a property, understanding the eligibility criteria for ATED can help you plan your tax obligations effectively and avoid any compliance issues.
Property value thresholds
The property value threshold for ATED is quite high. If your UK residential property was valued at £500,000 or more on 1 April 2022 or on the purchase date if acquired later, it becomes subject to ATED. The initial valuation date specified by HMRC is critical to ascertain if a property meets the ATED high-value threshold.
Ownership structures
ATED applies to properties owned by Non-Natural Persons (NNPs), which include companies, partnerships with a corporate partner, or collective investment schemes. Therefore, if your property is owned through such structures, it falls within the ambit of ATED.
However, if the property is owned by individuals, it is not subject to ATED.
Exceptions and exemptions
There are certain exceptions and exemptions when it comes to ATED. Properties that are not considered dwellings for ATED purposes, such as:
- Hotels
- Guest houses
- Boarding school accommodations
- Hospitals
- Student halls of residence
- Military accommodations
- Care homes
- Prisons
are exempt.
However, if a property is offered to family members at non-commercial rates, ATED may become chargeable based on the property value.
Calculating Your ATED Liability
Once you have determined that your property is subject to ATED, the next step is to calculate your ATED liability. This involves:
- Identifying the applicable ATED band, based on your property’s value
- Calculating the annual tax amount using the rate associated with the ATED band
- Applying any available reliefs to reduce your ATED liability
- If the property was not owned for the entire chargeable period, the chargeable amount for ATED is prorated accordingly.
Additionally, be aware of the potential for double taxation with capital gains tax when selling a property subject to ATED.
ATED bands and rates
The ATED charge is structured in bands based on the value of the property, and the rates escalate as the property value increases. For example, properties valued between 500,000 and 1 million pounds are subjected to an ATED of 4,150 pounds for the tax year beginning April 2023, while dwellings valued over 20 million pounds have an ATED charge of 269,450 pounds for the same period.
Claiming relief and exemptions
To claim ATED relief, it is necessary to submit a return if you are eligible. This process ensures that you can receive the relief you are entitled to. Some of the entities that are exempt from ATED when holding properties for the respective purposes include charitable companies, public bodies, and bodies established for national purposes, such as the trustees of the British Museum.
Chargeable amounts and taxable value
To determine the chargeable amounts for ATED, you need to calculate the ATED due for the period the property is owned in the chargeable period. The taxable value for ATED is determined by the property’s value at the latest valuation date, such as 1 April 2022, or if acquired after that date, its acquisition cost.
Accurate property valuation is critical as it determines the annual tax payable for ATED, including property tax, and affects the liability for the next five years. Additionally, updates to chargeable amounts and revaluation years can impact the relationship between ATED and capital gains tax, influencing overall tax liabilities.
Meeting ATED Reporting Requirements
Understanding and meeting ATED reporting requirements is crucial for property owners to avoid penalties. You need to file ongoing tax payments for existing properties subject to ATED by the 30th of April each year.
For a dwelling acquired during a chargeable period, the ATED return, along with any tax due, must be filed within 30 days of the acquisition date.
In the case of a newly built property, the requirement is to file an ATED return and pay the tax within 90 days of the property becoming a dwelling for tax purposes.
Filing an ATED return
ATED returns are to be submitted annually through an online service, which is also used for registering and managing agent appointments for relevant UK properties. If you are unable to use the online service, you must contact the ATED helpline to request a paper return.
It’s worth noting that the deadline for meeting ATED reporting requirements for the 2024/25 year is the 30th of April 2024.
Payment deadlines and penalties
The ATED charge has the following requirements:
- It is payable by 30 April for any chargeable period.
- Additional returns may be necessary within 30 days from the end of the chargeable period or the start of the next one for ATED-related changes.
- Failing to submit an ATED return can result in penalties from HMRC, including substantial penalties of 5% of the tax due.
- Interest may also be imposed for non-compliance with the option to appeal against them.
To avoid financial penalties, it is crucial for property owners to meet payment deadlines and ensure accurate property valuation.
Record-keeping and documentation
Property owners and agents are required to maintain thorough records for ATED purposes, ensuring compliance and readiness for completing necessary tax documentation. The records must include the property’s address, its valuation details, and the title number as these are essential elements of an ATED chargeable return.
Valuation and Revaluation of Properties
Properties under ATED are subject to revaluation every 5 years. All companies that own wholly or partly a high value residential property in the UK must adhere to these revaluation requirements, ensuring their UK residential property valued accurately.
Owners who value the property themselves must retain sufficient evidence such as property website screenshots, and professional valuations are advisable near band thresholds to prevent penalties. Accurate property valuation also impacts capital gains tax and overall tax liabilities.
Initial valuation date
For properties acquired on or before April 1, 2022, the initial valuation date is set to April 1, 2022. Properties acquired after April 1, 2022 should use their date of acquisition as the initial valuation date.
The specific initial valuation date for determining ATED for the tax year 2023-24 is April 1, 2022, provided the property was acquired on or before that date; otherwise, it’s the acquisition date.
Revaluation requirements
Property owners must revalue their properties for ATED purposes every five years, as mandated by ATED legislation. For the 2023-24 chargeable period and onwards, properties should be revalued using the valuation date of April 1, 2022, or the acquisition date if it is more recent. This revaluation is essential for determining the property value annual charge.
A revaluation is also required at the time of a significant transaction, such as a purchase or sale of part of the property that exceeds £40,000 in value, which becomes the revaluation date.
Professional valuations and potential disputes
A professional valuation is beneficial for properties not valued since 2013 to accurately calculate ATED for tax years, such as starting in 2018. Owners of properties near ATED thresholds should employ qualified valuers for exact valuation submissions, minimizing the risk of errors.
Property owners who are unsure of the correct ATED valuation band for their property can request a Pre-Return Banding Check from HMRC. In the case of disagreements over property valuations, owners have the option to dispute with the district valuer.
ATED Reliefs and Exemptions
There are several reliefs and exemptions available for ATED. These include:
- Properties being developed for resale
- Properties let out by property rental businesses
- Properties occupied by working farmers
- Properties held by trading companies for employees’ use
- Qualifying housing cooperatives
Companies and collective entities can also claim relief for properties owned through corporate structures, specifically when used for legitimate rental businesses or by property developers aiming to resell as part of a collective investment scheme. Corporation tax relief can be claimed in such cases.
Property rental business relief
Property rental businesses that rent out properties on a commercial basis to third parties may qualify for relief from ATED. This relief is contingent upon the property being let commercially, with no personal connection between the owner and the occupants, and is applicable under circumstances where employees or partners use the property in the course of the business.
Property developer relief
Property developer relief is specifically designed for properties held solely for the purpose of property development and subsequent resale as part of standard trading operations. This relief extends to qualifying housing co-operatives, reflecting a broadening of the relief’s scope effective from 1 April 2020.
Charitable company exemptions
Charitable companies, public bodies, and national bodies, including trustees of the British Museum, qualify for ATED exemptions. For a charitable company to be exempt from ATED, it must use the property for its charitable purposes.
Mixed-Use and Multiple Dwelling Properties
Properties that fall under the category of mixed-use and multiple dwelling properties have specific considerations under ATED. For mixed-use properties, only the residential part should be revalued for ATED purposes, excluding any commercial elements such as shops.
When dealing with properties that comprise multiple dwellings, each dwelling should be valued individually for ATED purposes.
Valuing mixed-use properties
When it comes to mixed-use properties under ATED, the valuation process focuses exclusively on the residential portion of the property. This ensures that only the residential part of the property is subject to ATED, and not the commercial areas.
Allocating ATED liability for multiple dwelling properties
If a property comprises multiple self-contained flats, each flat is typically valued separately for ATED, as every flat is considered an individual dwelling. However, if connected persons like a freeholder and leaseholder hold multiple interests within the same dwelling, such interests are consolidated into a single dwelling interest for ATED valuation.
Navigating ATED Legislation Changes
Keeping up-to-date with ATED legislation changes is essential to ensure you meet your obligations as a property owner. The ATED legislation was updated in April 2018 to include the revised valuation date of 1 April 2017, impacting the valuation of properties for tax purposes. Additionally, legislative updates have significant implications for capital gains tax and overall tax obligations.
Following the April 2018 changes, all ATED returns are required to be filed using the new ATED online digital service, streamlining the submission process.
Digital service implementation
The ATED digital service was launched in January 2017 to modernize the process by allowing online filing of returns, appointment of agents, and retrieval of payment references. Subsequent updates have been made to improve ATED’s digital service, including adding new chargeable amounts to the system and enhancing the online service experience.
Relief declaration return updates
In August 2015, the ATED guidance was updated to include information about the introduction of the new Relief Declaration Return. Relief Declaration Returns can be submitted using the ATED online service, without the need to enter property details or valuations if no charge is due.
Seeking Professional Help for ATED Compliance
Navigating the complexities of ATED can be challenging for property owners, especially given the steep penalties associated with non-compliance. That’s why many property owners often seek professional guidance for ATED compliance. Professional guidance is also crucial for managing overall tax obligations, including ATED and capital gains tax.
Professional guidance can help property owners understand the definition of ‘dwelling’, calculate chargeable amounts, and address penalties and appeals.
Benefits of professional guidance
Professional guidance is critical for property investors to navigate the complexities of ATED effectively and ensure transparency, efficiency, and compliance. A RICS registered valuer’s expertise ensures legal compliance with ATED and helps in addressing errors or disputes in ATED returns.
Professional valuations can play a vital role in reducing annual tax liabilities and avoiding penalties through accurate property valuation and ATED compliance.
Selecting a qualified advisor
Choosing a qualified advisor is crucial for ATED compliance. Advisors with expertise in property accounting, taxation, and financial management within the UK context are crucial for effective ATED compliance. Qualified ATED advisors are equipped to offer tailored tax advisory services to a diverse clientele, including private individuals and international entities.
Summary
In conclusion, the Annual Tax on Enveloped Dwellings (ATED) is a significant consideration for any non-natural person owning a high-value residential property in the UK. From understanding the basic premise of ATED to the complexities of calculating liabilities, meeting reporting requirements, and navigating legislative changes, this comprehensive guide has covered all the significant aspects of ATED. The importance of professional guidance cannot be overstated, as it can help property owners navigate the complexities of ATED efficiently and effectively. Remember, understanding your obligations and meeting them in a timely manner can save you from unnecessary penalties and ensure you stay compliant with ATED regulations.
Who has to pay ATED taxes?
Companies that own UK residential property valued at more than £500,000 have to pay ATED taxes. The tax applies mainly to non-natural persons and was introduced on 1 April 2013.
How to avoid ATED tax?
You can avoid ATED tax by ensuring that the property is let to a third party on a commercial basis and is not occupied by anyone connected with the owner, or if it is part of a property trading business and not occupied by anyone connected with the owner.
What is the Annual Tax on Enveloped Dwellings (ATED)?
ATED is an annual tax applicable to UK residential properties owned by non-natural persons, primarily companies, and is calculated based on property value and any available reliefs or exemptions.
Who are considered non-natural persons for ATED?
Non-natural persons for ATED include corporate entities such as companies, limited liability partnerships, trusts, or investment schemes.
How is ATED calculated?
ATED is calculated by identifying the applicable ATED band based on your property’s value, calculating the annual tax amount using the rate associated with the ATED band, and applying any available reliefs to reduce your ATED liability.
