Annual tax on enveloped dwellings (ATED)

Annual Tax on Enveloped Dwellings, or ATED, is a kind of property tax, which deals with reducing the ‘enveloping’ of residential property into corporate structures through a fixed annual charge. This is based on the property’s value.

ATED applies to you if your property qualifies as a ‘dwelling’ (ie. a place of residence) in the UK, is valued at over £500,000, and is owned either by a company or a partnership in which one partner is a company, or some other kind of collective investment scheme.

In this article we’ll outline how you can tell if you need to do an ATED return, where to get started valuing your property and what to look out for.

Do I need to complete an ATED return?

You need to complete an ATED return on your property if:

• Your property is in the UK
• Your property is classed as a ‘dwelling’
• Your property has been valued at more than:
  • £500,000 (for returns from 2016 to 2017 onwards)
  • £1 million (for returns from 2015 to 2016 onwards)
  • £2 million (for returns from 2013 to 2014 onwards)
• Your property is owned completely or partly by a:
  • Limited Company
  • partnership where any of the partners is a Limited Company
  • Collective investment scheme - for example a unit trust or an open ended investment vehicle

There are a couple of cases where you might actually be exempt from ATED and therefore not required to file returns. This could occur if you are either a charitable company using the dwelling for charitable purposes, or for certain public bodies and national bodies.

What is classed as a ‘dwelling’?

Your property is considered a dwelling if all or part of it is used or could potentially be used as a house or flat, or any place of residence (this includes any grounds, gardens and buildings within the property). It’s also worth having a look at the different types of properties and how those are valued, as this can sometimes make a difference.

If your property could be classed as one of the following, then it doesn’t count as a dwelling:

• A hotel
• A guest-house
• Boarding school accommodation
• A Hospital
• A student hall of residence
• Military accommodation
• A care-home
• A prison

How do I know how much to pay?

For this you’ll need a valuation, which will determine the amount of tax you have to pay.

Since the 2016-17 tax year and from then onwards, you only need to make an ATED return on any dwelling with a value of £500,000 on the date you acquired it. Any properties you owned on or before 1 April 2012 must be revalued as of 1 April 2017, as the same valuation will have been set for the next five chargeable periods. This next valuation will cover the following five chargeable periods, beginning on 1 April 2018.

To figure out how much your property is worth, you can either value the property yourself or go with a professional, but either way you have to do the valuation for an open market, and for a willing buyer willing seller arrangement.

If you acquired the property after 1 April 2012, you can use the value of the property on the date that you became the owner. If the property is a new building, or if it’s been changed so that it newly qualifies as a dwelling, then (depending on which is earlier) your valuation will be set on the first date it was occupied, or on the date it began to exist in the eyes of Council Tax.

What to watch out for

It’s good to remember that HMRC can challenge a valuation and, having done that, they are able to charge interest and penalties if the original valuation is deemed incorrect.

You could also be charged interest and a penalty for not:

• filing your return on time
• paying on time
• submitting an accurate return

There are ways to reduce your ATED to nothing, though you should make sure you are 100% certain about your eligibility for these. Here’s a list of some reliefs that your property might qualify for:

• If your property is let to a third party on a commercial basis.
• If your property is trading stock of a business or property development.
• If it’s open to the public for a minimum of 28 days of the year.
• If it’s used by a trading business to provide living accommodation for qualifying employees, for example a farmhouse occupied by a farm worker (either current or previously but long serving).
• If it’s owned by a (registered) provider of social housing.

Even if you do qualify for any of these reliefs, it’s worth noting that exclusions and detailed conditions can apply, so always consult a professional who will ensure the fine print is carefully examined.

Changes to ATED since April 2018

The ATED regime has changed since April 2018. All online ATED returns will have to be filed using a new online digital service. This online service also has to be used in order to appoint an agent to act on your behalf.

The annual ATED charge will also increase with inflation, so make sure you’re always working with the most up to date breakdown of fees and payment bands when figuring out how much you need to pay.