ATED – Annual Tax on Enveloped Dwellings

Annual Tax on Enveloped Dwellings (‘ATED’) was introduced on 1 April 2013. It imposes a fixed annual charge based on the value of residential property held by ‘Non-Natural Person’, i.e. companies, Special Purpose Vehicle’s (‘SPV’), collective investment schemes and partnerships. An annual return (or relief declaration return) must be filed by 30 April each year if the entity falls within the charge.

Most residential properties are owned directly by individuals, but in some cases a dwelling may be owned by a company, a partnership with a corporate member or other collective investment vehicle. In these circumstances the dwelling is said to be ‘enveloped’ because the ownership sits within a corporate ‘wrapper’ or ‘envelope’.

ATED was originally introduced to discourage ‘enveloping’ high-value residential properties within SPVs, enabling an onward sale of the property via a sale of shares in the SPV, such that no stamp duty land tax is payable by the purchaser.

For ATED purposes, a property will be a dwelling if all or part of it is used, or could be used as a residence. A dwelling includes gardens, grounds and any building within them.

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Who should pay?

If you own residential property in the UK through a non natural person, and the property exceeds the relevant values in the table below as at the mentioned years, you are required to file an ATED return:

  • More than £2 million for returns from 2013 to 2014 onwards
  • More than £1 million for returns from 2015 to 2016 onwards
  • More than £500,000 for returns from 2016 to 2017 onwards

  • How much to pay?

    ATED is a fixed charge based on the value of the enveloped property. It is charged by reference to financial years i.e. an annual period running from 1 April to 31 March.

    The ATED charges for the period 1 April 2019 to 31 March 2020 are:

    Property value ATED charge
    More than £500,000 up to £1 million £3,650
    More than £1 million up to £2 million £7,400
    More than £2 million up to £5 million £24,800
    More than £5 million up to £10 million £57,900
    More than £10 million up to £20 million £116,100
    More than £20 million £232,350

    ATED applies on a proportionate basis (the ATED you pay will be calculated by reference to the number of days in the year the property falls within ATED) if you only own the dwelling for part of a year or you change how you use the property so that it moves into or out of ATED.

    These annual charges increase each year in line with inflation. Rates for previous years can be found here.

    Filing and payment

    Where a property is within the scope of ATED, a return needs to be submitted for each annual period together with payment of any ATED charge.

    In contrast to most other taxes, ATED returns need to be submitted at the beginning of each annual period and not following the end of the period. Returns must be filed for a period, and any ATED charges paid:

    • by 30 April if the property was held on 1 April
    • within 30 days of aquisition if a property within the scope of ATED is acquired after 1 April
    • for new build properties, within 90 days of the earliest of first occupation or first becoming a dwelling for Council Tax purposes

    However, ATED returns cannot be submitted before the start of the period (i.e. before 1 April).

    This means that, for example, returns for the period ending 31 March 2019 have to be submitted and payments made between 1 and 30 April 2018 if the property was held on 1 April 2018.Penalties and interest can be also charged if a return or payment is late or an incorrect return is submitted.

    From 1 April 2018, all online ATED returns must be filed using the ATED online service. This replaces the previous online forms, which will no longer be available from 31 March 2018.

    ATED Exemptions

    Nature of dwelling

    The following buildings are not considered dwellings and aren’t included under ATED:

    • Hotels
    • Guest houses
    • Boarding school accommodation
    • Hospitals
    • Student halls of residence
    • Military accommodation
    • Care homes
    • Prisons

    ATED and CGT

    From a Capital Gains Tax (‘CGT’) perspective, an overall gain prior to April 2013 will be subject to corporation tax, or will be outside the scope of tax if it is a non-resident company such as a British Virgin Islands (‘BVI’) company. From April 2013, up until April 2019 where a company sold a property in respect of which it has at any time been liable to the ATED charge, the ATED part of the gain was subject to CGT at 28%. The ATED-related CGT charge applied only to the increase in the property’s value between 6 April 2013 (or the date on which the property first comes within the ATED regime) and the date of disposal.

    The ATED related CGT charge has been abolished for disposals on or after 6 April 2019 and for corporation tax for accounting periods beginning on or after 6 April 2019. Gains on sale of ATED dwellings and now subject to the normal CGT rules for UK or non-UK residents.

    Further New Rules

    Since 6 April 2017, all UK residential properties owned by an individual through an offshore corporate structure have been subject to Inheritance Tax (‘IHT’). So, any non-UK domicile individual owning shares in an offshore company that owns UK property, or an individual who created an offshore trust to hold the shares of the offshore company, will be subject to IHT on that individual’s death in relation to the value of the UK property. The ten yearly trust periodic tax charge may also arise. Individuals with such arrangements in place will need to consider ‘de-enveloping’ the structure if they do not wish to suffer the tax consequences.

    In the autumn Budget statement of 22 November 2017, detailed changes were announced to the taxing rules from April 2020 of non-resident companies’ income from UK property. From then net profits will be chargeable to corporation tax rather than income tax at 20%. In addition, capital gains arising to such non-resident companies on the disposal of UK property will be charged to corporation tax (currently 19% but reducing to 17% in 2020–21) rather than CGT. Therefore, in the future, once all the legislation is in place, non-UK companies will be subject to corporation tax and not income tax. This will create costly corporate compliance requirements, as well as restrictions on losses and interest reliefs.

    Our service: ATED filing, online gateway, valuations, reclaim overpaid ATED, ATED penalties, ATED CGT

    We are here to help and we can assist you if ATED applies to you.

    Having an experienced team of accountants looking after your business can ensure that you are aware of such compliance issues facing your property business. If you are looking for a greater level of industry understanding and skills, we would be pleased to discuss our range of accounting services.

    With regards to ATED tax returns, our experienced team can:

    • Set up your ATED online gateway account
    • Complete returns and submit them on your behalf
    • Explain ATED and remind you of filing deadlines
    • Advise you on reliefs available
    • Advise you on your personal capital gains position
    • Assist in property valuations if required
    • Advise on new builds and conversions
    • Assist in tax planning
    • File and calculate ATED CGT
    • Assist in any HMRC tax enquiry
    • Appeal and settle any existing investigations and penalties

    Penalties and interest may apply to late and/or incorrect ATED returns so if you are in any doubt please contact our tax team today.