Annual Tax on Enveloped Dwellings (ATED) is an annual tax payable mainly by companies that own UK residential property valued at over £500,000, to ensure property owners are paying stamp duty land tax (SDLT).
What is the Annual Tax on Enveloped Dwellings?
A dwelling is the classification of property if all or part of it is used, or could be used, as a residence. A house or a flat for example. It includes any gardens, grounds and buildings within them. The term ‘enveloped dwelling’ refers to a residential property that is owned or ‘enveloped’ within a corporate wrapper. You’ll need to complete an ATED return if your property is classed as a dwelling, valued at over £500,000 and is owned entirely or partially by a company, a partnership where any of the partners is a company or a collective investment scheme.
Why is ATED important?
ATED was introduced within a package of measures to deter ownership of high-value residential properties within structures whereby those properties could be transferred or enjoyed without paying stamp duty land tax (SDLT). That package also introduced a 15% SDLT charge applied at the time of purchase. ATED is often overlooked because it is considered separately for each acquisition and then reconsidered on an annual basis, which is prospective as opposed to retrospective. Additionally, increasing property values and a drop in the minimum level at which the tax applies, means that property worth over £500,000 is considered ‘high value’, despite this being the average residential property value across many areas.
Your property investment
Non-residential property is not subject to ATED. rather your organisation must have a beneficial interest in a residential property aka dwelling. That interest is usually defined and covers freehold and leasehold interests as well as shares or interests in land and the right to receive rent. There are circumstances where there are different interests within the same dwelling, typically the leasehold and the freehold. Each interest holder needs to consider their position. Your organisation needs to be clear on the nature of your interest as well as that of any connected individuals. This determines what needs to be valued and, in some situations, that value of different dwellings or interests might need to be amalgamated. Only the interests in those properties which are ‘dwellings’ are subject to ATED. A dwelling is a distinct unit of residential property, either in use already or suitable to be used as such and includes any associated land and buildings. Some properties will have one dwelling within the grounds of another. Possibly a main house and a cottage within an estate for example. Or more than one dwelling in a property, such as a block of flats or a terrace of houses, and multiple linked dwellings. However, some properties are specifically not classified as dwellings for these purposes and do not need to be reported. These include hotels, guest houses, some types of educational accommodation, hospitals, care homes and prisons.
Reliefs and exemptions for buy-to-let landlords
There are some reliefs and exemptions that can be claimed by buy-to-let landlords. Property rental businesses or BTL landlords who hold the property within a company, can in most cases claim ATED relief if the property is let to a third party and not occupied by the owner, or anyone connected to the owner. However, a return is required for each property, where the exemption from ATED needs to be claimed. Reliefs are available to property rental businesses, a dwelling open to the public, property developers or traders, working farmhouses and occupation by certain employees. Some conditions apply to these types of relief so you will need to follow the rules carefully. Relief needs to be claimed on a separate Relief Declaration Return. This does not remove your responsibility to file an ATED return. However, If any relief reduces the ATED liability to nil, you can use a simplified return. Claims for relief for submitting the ATED returns are subject to the same deadlines.
What do you need to do?
Subject to reliefs, you are potentially subject to an ATED charge for each property. The amount of the charge depends on the valuation band within which your property falls. The property value that you use to calculate how much ATED is due is not the property’s current value. The value is calculated from the purchase price for five years and will be due to be revalued every 5 years. You can use a professional valuation or work out the value of the property yourself, as long as you retain evidence of how you came to that valuation. A return to HMRC must be submitted by 30th April of each relevant tax year, along with any payment due. If you are eligible for any reliefs and exemptions, you will need to submit a Relief Declaration Return.
Prestige Business Management Works for You
We can help you manage your property investments and file your tax return in the most efficient ways possible. We’ll keep you up to date with filing deadlines and forthcoming changes to legislation at all times. Find out what we can do for you. Call us today on 0203 773 2927.