What Landlords Need To Know About ATED - Annual Tax On Enveloped Dwellings

What is ATED?

Annual Tax on Enveloped Dwellings (ATED) is a tax for companies that own UK residential property valued over £500,000. The chargeable period runs from 1st of April to the following 31st of March.

What do landlords need to do?

If your property is valued over £500,000 it will be in scope for ATED. You’ll need to file your return and apply for any reliefs by 30th April 2023.

1. Check if you qualify for any reliefs

   • The good news is that most property investors renting out their residential properties at a market rate will qualify for letting business relief. This means that no ATED is payable, but a return will still need to be submitted.

   • However, be aware that your property may not qualify for relief, if offered out to family members at non-commercial rates, such as the use of a Furnished Holiday Let.

   • In these circumstances, ATED may become chargeable based on the value of the property.

2. Complete your ATED filing

   You'll need the following information for submission:

   • Property address

   • Property value

   • Property title number

What if the property is not just a single residential dwelling?

• If your property is of mixed-use, such as a flat above a shop, then only revalue the residential part, not the shop.

• If your property has more than one dwelling, such as a building with several self-contained flats, each flat would be a dwelling and should be valued separately.

• Properties with multiple dwellings that are connected with internal access between them would still count as a single dwelling, such as Houses of Multiple Occupancy (HMOs).

• Adjoining buildings with internal access would count as a single dwelling also, such as an annexe joined to the main property with internal access.

How do I manage ongoing ATED responsibilities?

If you are acquiring property within the scope of ATED, a return and payment of any tax would be due within 30 days of the purchase.

For existing properties, ongoing filing and tax payments are due by the 30th of April. The 2023/24 reporting period is due to be reported and tax paid by the 30th April 2023.

 Bit of Background

ATED was introduced as an avoidance measure to deter the use of companies to acquire and hold property, as a means of reducing Stamp Duty Land Tax. If property is held by a company the sale of the company shares will typically incur a Stamp Duty rate of 0.5% whereas if the sale was of a property outside a company, at least 15% SDLT would apply on a property purchase of more than 500K. In the absence of any specific legislation the sale of shares in a property company would invariably be the option most often used.

The ATED charge is based on property value bandings and these valuations must be reviewed every five years:

ATED returns are for the period 1 April to 31 March. Where a property is within the scope of ATED on 1 April the return and tax payment is due on 30 April. Where the property comes into the ATED regime after 1 April, returns and payment are due within 30 days of the property being acquired. There are tax geared and fixed penalties for failure to make returns on time.

There are reliefs available which means ATED tax is not due e.g. dwelling is let on a commercial basis. In such cases, it is still necessary to complete the return and claim relief.

For 2022/23 the charge is based on valuations on 1 April 2017 whereas the 2023/24 charge will be based on property values as at April 2022. As might be reasonably expected the valuation should be made on an open-market value basis. Where a property has only been held for part of the year the charge is pro-rated.

If the valuation is found to be incorrect there is potential for HMRC to charge interest and penalties. HMRC will carry out pre-banding checks on request if properties are within 10% of a band threshold.

The penalties for errors are dealt with in accordance with Schedule 24 Finance Act 2007 and can be levied at up to 100% of the tax incorrectly assessed in the ATED return.

The ICAEW have announced that HMRC are now enquiring into whether the correct bands have been used in certain ATED returns.

In the five-year period to April 2022, residential property prices have increased significantly and HMRC are clearly seeking to send a message that they are looking to investigate the use of incorrect valuations and therefore underpayments of ATED tax.

The downside of failing to make correct ATED returns is potentially costly and expert help should be sought to ensure full compliance with the rules.