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April 8, 2024
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Deadline Dash: Submit Your ATED Return Now

In the realm of property taxation in the United Kingdom, the Annual Tax on Enveloped Dwellings (ATED) regime is a significant consideration for property owners, particularly those who hold high-value residential properties within corporate structures. ATED is a tax levied on certain residential properties with a value in excess of £500,000 owned by companies, partnerships with corporate members, and collective investment schemes.

In this blog, we'll delve into the intricacies of ATED, exploring its purpose, applicability, rates, exemptions, compliance requirements, and potential implications for property owners.

Background to the regime

ATED was introduced by the UK government in 2013 as part of efforts to deter the holding of high-value residential properties through corporate structures, often perceived by HMRC to be for tax avoidance purposes. ATED is applicable to dwellings in the UK valued at over a certain threshold and owned by certain types of entities, primarily companies.

ATED applies to residential properties in the UK valued at £500,000. The value of the property for ATED purposes is determined based on its market value as of 1 April 2022, or the date of acquisition if later.

However, where there has been a substantial acquisition or disposal to said property (or part of the ‘dwelling’), this will result in a revaluation event for the purposes of ATED. Generally, an acquisition or disposal is considered ‘substantial’ if it is £40,000 or more.

What is the ATED Charge

The amount of ATED payable depends on the value of the property – the higher the property's value, the greater the annual tax charge. The current ATED bands and corresponding annual charges for the 2024/2025 tax year are as follows:

Taxable value of the propertyATED charge for tax year 2024/25
£500,001 to £1 million£4,400
£1,000,001 to £2 million£9,000
£2,000,001 to £5 million£30,550
£5,000,001 to £10 million£71,500
£10 million to £20 million£143,550
Over £20 million£287,500

What is a “dwelling”?

A "dwelling" refers to a residential property. Specifically, it includes any building or structure that is used or suitable for use as a single dwelling, or is in the process of being constructed or adapted for such use. This typically encompasses houses, apartments, and other residential accommodations where individuals live or could live.

A property is considered a dwelling if all or part of it is used, or could be used, as a residence. This also includes any gardens, grounds, and buildings within them.

Certain properties that are not classed as dwellings include hotels, guest houses, boarding school accommodation and hospitals.

Are there any exemptions?

Certain residential properties are exempt from ATED, including properties used for commercial purposes, properties open to the public for at least 28 days a year, and properties held as part of property development or trading businesses. Additionally, there are various reliefs available to mitigate or eliminate the ATED liability for qualifying properties, such as property rental businesses, properties held for charitable purposes, farmhouses and many more.

In our experience, the ATED charge generally applies where an individual is living in a residential property worth more than £500,000, where that property is owned by a company in their personal ownership. Clearly this is not the only scenario where it can apply, but this is the situation we see most frequently.

What action do I need to take?

Firstly, we would recommend that all companies undertake a review of their property portfolio to identify if any residential properties are held and if so what the value of those properties are. It is important to remember that when determining the value of the properties, you must consider the market value on 1 April 2022, not the acquisition cost (unless the property was bought after 1 April 2022).

If a company holds residential property that falls within the ATED regime they must register with HM Revenue and Customs (HMRC) and submit an annual ATED return, even if no tax is due as a result of the exemptions available! The deadline for ATED returns and payment of ATED is the 30th of April each year, with penalties imposed for late filing or payment. It’s important to note that unlike other self-assessment tax returns, ATED returns need to be completed in advance of the upcoming tax year! For property owners affected by ATED, compliance with the reporting requirements is crucial to avoid penalties.

HMRC’s website to submit your ATED return can be found HERE.

What to do if I buy a property in 2024-25?

If you acquire a property that falls within the scope of ATED in the 2024-25 tax year, you must file a return for this newly acquired property. This return must be submitted to HMRC within 30 days, or within 90 days for new builds.

Interaction with other taxes

In addition to being subject to ATED, company’s which purchase property worth more than £500,000 may be subject to additional stamp duty land tax charges. In some cases, this can be up to 15%.

Furthermore, HMRC will also levy surcharges on acquisitions of residential property by companies. Usually this is 3%.

However, there is also a 2% surcharge on residential properties in England and Northern Ireland bought by non-UK residents on or after 1 April 2021. The 2% surcharge applies on top of all other residential rates of SDLT including the 3% higher rate surcharge.

Summary

When looking at the acquisition of residential properties through a company, whilst there are many benefits to holding property in this way, the costs of acquisition can be expensive, and we would recommend seeking advice before completing any transaction.

Case Study

We had recently assisted a client who was unaware of the requirement to file an ATED return, despite qualifying for relief under employee occupation. HMRC contacted them, informing them of penalty fees for failing to submit an exemption claim for ATED for the years ended 31/03/2016 to 31/03/2022.

It is crucial to note you need to file an exemption claim by the 30/04 for the tax year ahead. If this return is more than 3 months late, HMRC will charge you will an additional penalty fee of £10 each day it remains outstanding for a maximum of 90 days.

Our client had to pay £9,100 for ATED late filing penalties all together.

Do not make a similar mistake!

Get in touch.

With the deadline quickly approaching, now is the ideal time to consult with our trusted tax advisors at PD Tax to ensure compliance and mitigate any potential penalties. Additionally, feel free to reach out if you require further details or wish to discuss eligibility for reliefs.

Disclaimer: This article is for general information only and is not intended to constitute individual advice. It is recommended that you seek independent tax advice.

Contact us today to discuss your tax requirements.
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