Companies or other organisations that own UK residential property valued at £500,000 or more could be subject to ATED (Annual Tax on Enveloped Dwellings). This blog will explain what it means and how it should be managed.
What is ATED?
ATED stands for Annual Tax on Enveloped Dwellings. It is a tax in the United Kingdom levied on specific high-value residential properties owned by companies, partnerships, or collective investment schemes.
The purpose of ATED is to discourage companies from holding residential property to avoid other property-related taxes, such as Stamp Duty Land Tax (SDLT).
Who needs to pay ATED?
ATED must be paid by organisations owning UK residential property valued at over £500,000 (as of 1 April 2022). Here is a breakdown of the full property criteria:
- The property is classified as a dwelling (that is if all or part of it is used as a residence)
- The property is in the UK
- The property is valued at over £500,000
- The property is owned (entirely or partially) by a company, partnership or collective investment scheme (such as a unit trust).
If applicable, companies must submit an ATED return by 30th April each year, with the tax charge payable annually in advance (i.e. the charge arising for 2023/24 is payable by 30th April 2023).
What kind of property is exempt from ATED?
Whether ATED applies to a property depends on whether it meets the definition of “dwelling”. HMRC defines a dwelling as a property used (wholly or partially) as a residence. However, some property types house people who are not classified as dwellings and are therefore not subject to ATED. These include:
- Hotels
- Boarding school accommodation
- Hospitals
- Military accommodation
- Care homes
- Prisons
- Guest houses
- Student halls
How is ATED calculated?
Please note: the following information is based upon the tax charges that will apply from 1 April 2024.
The ATED tax charge is based upon the taxable value of the property, with properties valued between £500k - £1m being subjected to a £4,400 tax charge, which increases to £287,500 for property values exceeding £20m.
However, it is essential to note that exemptions are available for properties that are let out on commercial terms or are used in the property development trade (among other exemptions). In instances where the exemption applies, HMRC still expects companies to prepare and submit a nil ATED return.
ATED chargeable amounts (from 1 April 2024)
Value of property |
Annual ATED charge |
|
£500,000 - £1,000,000 |
£4,400 |
|
£1,000,000 - £2,000,000 |
£9,000 |
|
£2,000,000 - £5,000,000 |
£30,550 |
|
£5,000,000 - £10,000,000 |
£71,500 |
|
£10,000,000 - £20,000,000 |
£143,550 |
|
£20,000,000+ |
£287,500 |
For information on ATED chargeable amounts before the 2024/25 financial year, visit gov.uk.
ATED Penalties
If a company fails to meet its ATED obligations, it could be penalised by HMRC. Principally, issues resulting in penalties will include:
- Failure to file your ATED return before the deadline
- Failure to pay the taxes owed on time
- Submitting an inaccurate ATED return
Organisations can appeal to HMRC if they disagree with their penalty decision. To do this, they must write to HMRC within 30 days of the decision date.
Seek ATED advice
For organisations that own several high-value residential properties, ATED can become quite complex. Furthermore, the potential penalties for improper submission of ATED returns can be steep. That’s why we recommend companies with significant residential property holdings speak to a qualified business tax advisor to ensure everything runs smoothly year-to-year.
If you have a question about your position regarding ATED, we encourage you to contact our team today.
Adam Zaman
I head up the Corporate tax compliance department at Shorts, dealing with owner-managed businesses and larger corporate groups. My role ensures that companies are accurately preparing and reporting their corporation tax returns to HMRC, whilst also maximising their tax efficiencies.
View my articlesTags: Land & Property, Business Taxes
