Annual Tax on Enveloped Dwellings (ATED): An Overview

Annual Tax on Enveloped Dwellings (ATED): An Overview

Key Contacts: Gareth Baker & Ben Honour

Author: Emma Hutchings

What is ATED?

When purchasing and holding a residential property or when purchasing a company that owns residential property (whether for development or investment purposes) non-natural persons (NNPs) such as companies need to consider the potential ATED payable. ATED is an annual tax payable by NNPs (whether that NNP is based in the United Kingdom or not) that own residential dwellings in the United Kingdom with an individual property value of more than £500,000. For the purposes of deciding whether a property is a ‘dwelling’, the government guidance states that the property will be a dwelling if all or part of it is used, or could be used, as a residence and this will include any gardens, buildings or grounds within the property.  Properties such as hotels, hospitals, and student halls of residence are not classed as dwellings for ATED purposes.

ATED payable

If ATED is payable the amount payable is decided by using a banding system based on the value of the property. The following bands apply for the period 1 April 2021 to 31 March 2022:

Property ValueAnnual Amount Payable
More than £500,000 but not more than £1m£3,700
More than £1m but not more than £2m£7,500
More than £2m but not more than £5m£25,300
More than £5m but not more than £10m£59,100
More than £10m but not more than £20m£118,600
More than £20m£237,400

Reliefs and Exemptions

ATED will apply to NNPs that own residential properties unless the NNP is able to claim a relief. There are a number of reliefs available which reduce the ATED payable to nil and in order to claim the relief an ATED relief return will need to be submitted to HMRC by the relevant due date. The NNP may be able to claim a relief if the property is:

  1. let on a commercial basis to a third party and the property is not occupied by anyone connected to the NNP;
  2. being redeveloped for resale or held as stock for resale by a property developer;
  3. open to the public for no less than 28 days a year;
  4. repossessed by a financial institution;
  5. farmhouse being occupied by working farmers;
  6. being acquired under a regulated home reversion plan;
  7. held by a trading business for the use of employees as accommodation in the trade;
  8. owner by a registered provider of social housing.

Charities, certain public bodies and bodies established for National Purposes are exempt from ATED and will not need to submit a return or claim a relief.

Filing ATED Returns and additional considerations

If an NNP is purchasing a residential property that will trigger an ATED liability, a return will need to be filed with HMRC within 30 days of completion with subsequent returns being filed with HMRC between 1 April and 30 April in any chargeable period for the period the property is held by the NNP. Penalties for late filling and late payment of ATED also apply. 

In addition to paying ATED  companies will need to consider the amount of Stamp Duty Land Tax/ Land Transaction Tax that will become payable on the purchase of the property and the Capital Gains Tax payable on the disposal of any property.

A buyer (whether an individual or NNP) should also consider the ATED position when purchasing a company that owns a residential property valued at more than £500,000. The buyer should ensure that payment of any ATED due for the period prior to completion is paid prior to completion of the acquisition or is apportioned accordingly and the buyer should obtain advice on its ongoing ATED liability following completion of the acquisition.

How can Acuity Law help?

ATED is a complex tax area and we have a range of experts here to guide you through the ATED process.  If you would like further advice or guidance on the risks associated with ATED or your ATED obligations when purchasing a residential property or purchasing a company that owns residential property (including whether any reliefs are available) please contact our Real Estate team for assistance.

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