Business tax – guidance

Annual Tax on Enveloped Dwellings: the basics

Find out about Annual Tax on Enveloped Dwellings, and what to do if it affects you.

Overview

Annual Tax on Enveloped Dwellings (ATED) is payable by companies that own UK residential property (a dwelling) valued above a certain amount. This tax is payable each year.

Most residential properties are owned directly by individuals. But in some cases a dwelling may be owned by a company, a partnership with a corporate member or other collective investment vehicle. In these circumstances the dwelling is said to be ‘enveloped’ because the ownership sits within a corporate ‘wrapper’ or ‘envelope’.

You’ll need to complete an ATED return if your property:

  • is a dwelling (see below for definition)
  • is in the UK
  • was valued at more than £2 million on 1 April 2012 or at acquisition if later for returns from 2013 to 2014 onwards
  • was valued at more than £1 million on 1 April 2012 or at acquisition if later for returns from 2015 to 2016 onwards
  • is owned completely or partly by a company, a partnership where one of the partners is a company, or a ‘collective investment vehicle’ - for example, a unit trust or an open ended investment company

There are reliefs that could reduce the tax completely but you can only claim them if you complete and send in a return.

There are also a number of exemptions from the tax, most significantly, charitable companies using the dwelling for charitable purposes, which mean you may not have to file a return.

The amount of ATED due is worked out using a banding system based on the value of your property. You need to find out which value band your property is in.

Annual chargeable amounts

The annual chargeable amounts for ATED increase each year in line with the Consumer Prices Index (CPI). However for the 2015 to 2016 chargeable period the charges are increased by 50% above CPI for properties valued at more than £2 million.

A new band also comes into effect for properties valued at more than £1 million but less than £2 million for the 2015 to 2016 chargeable period.

You must ensure that you calculate your liability based on the correct charges before filing your return as they can change.

The ATED threshold will be reduced from £2 million to £500,000 over the next 2 years.

Chargeable amounts for chargeable period 1 April 2015 to 31 March 2016

Property value Annual chargeable amount 2015 to 2016
More than £1 million but not more than £2 million £7,000
More than £2 million but not more than £5 million £23,350
More than £5 million but not more than £10 million £54,450
More than £10 million but not more than £20 million £109,050
More than £20 million £218,200

From 1 April 2016 a further band will come into effect for properties with a value greater than £500,000 but not more than £1 million, with an annual charge of £3,500.

Chargeable amounts for chargeable period 1 April 2014 to 31 March 2015

Property value Annual chargeable amount 2014 to 2015
More than £2 million but not more than £5 million £15,400
More than £5 million but not more than £10 million £35,900
More than £10 million but not more than £20 million £71,850
More than £20 million £143,750

Chargeable amounts for chargeable period 1 April 2013 to 31 March 2014

Property value Annual chargeable amount 2013 to 2014
More than £2 million but not more than £5 million £15,000
More than £5 million but not more than £10 million £35,000
More than £10 million but not more than £20 million £70,000
More than £20 million £140,000

ATED applies on a proportionate basis (the ATED you pay will be calculated by reference to the number of days in the year the property falls within ATED) if:

  • you only own the dwelling for part of a year
  • you change how you use the property so that it moves into or out of ATED

Find more on how to calculate the charge on a proportionate basis in chapter 6 of the ATED technical guidance.

Stamp Duty Land Tax (SDLT) is charged at a higher rate for corporate bodies. You may also have to pay Capital Gains Tax (CGT) if you dispose of property that was subject to ATED.

Who pays ATED

ATED only needs to be paid when the property is owned by:

  • a company or other corporate body - however a company that owns property in its capacity as a trustee of a settlement is not included in ATED, if a company holds property as a trustee of a bare trust it’s the person who beneficially owns the property who may be liable to ATED
  • a collective investment vehicle (such as a unit trust or an open ended investment company)
  • a partnership which includes one, or more, of the above

What a dwelling is

ATED applies to residential properties (dwellings) that are physically located in the UK. A dwelling may be all or part of a residential or mixed-use property and includes properties ‘capable of being a dwelling’.

Sometimes a dwelling is part of a larger, mixed-use property that has parts not used for residential purposes. Only the residential part would have ATED payable on it. The residential part will need to be valued to work out which ATED band it falls into.

A dwelling includes gardens and grounds and any building within them, unless that building is being used for a purpose covered by a relief).

If a property consists of a number of self-contained flats, each flat will usually be valued separately.

If there’s more than one dwelling in a property and they’re owned by a company or person connected with the company, they’re added together and looked at as a single dwelling where there’s internal access between the two. Two dwellings in adjoining buildings with internal access between them are also treated as one dwelling for ATED.

Where companies and individuals connected to the company own multiple interests in a dwelling, these will be added together for ATED purposes. This could be:

  • shareholders or their relatives
  • beneficiaries of settlements where the dwelling is owned by a company that’s owned by the trustees

An example could be where the freehold interest is owned by one person (the company) and a leasehold interest is owned by another (perhaps an individual connected to the company).

Special rules apply where an interest is held by an individual and a company. In these circumstances aggregation only occurs where the company’s interest is valued at more than £500,000 and where the aggregate value is more than £2 million. Where the aggregate value is less than £2 million, but more than £1 million, the company’s interest in the dwelling must be worth more than £250,000 for aggregation to apply.

Some buildings are not considered to be dwellings and aren’t included under ATED, these are:

  • hotels
  • guest houses
  • boarding school accommodation
  • hospitals
  • student halls of residence
  • military accommodation
  • care homes
  • prisons

Historic houses

If a company owns a historic house that’s open to the public, or provides access to the dwelling as part of its services (for example, as a wedding venue) with the intention of being open for at least 28 days a year, it may be able to claim a relief that will reduce its ATED charge to nil.

The company’s activities in the historic house must be commercial and with a profit-seeking motive, even if that profit doesn’t cover the full costs of the house. Also, access must be to a significant part of the property (relative to the size, nature and function of the areas opened to the public).

This applies even where a person connected with the owner is in occupation.

Find more at section 35 of the ATED technical guidance.

Working farmhouses

If a company owns a farmhouse that carries out farming commercially and with a profit seeking motive, it may be able to claim a relief that will reduce its ATED charge to nil.

To qualify for this, the criteria will include a condition that a ‘farm worker’ must occupy the property. The relief will be available where a person connected to the owner occupies the farmhouse, so long as they are a ‘farm worker’ and the relevant conditions are met.

Valuation of property

For ATED the value of the dwelling is its value:

  • on 1 April 2012, if you owned your interest in the property at that date - this date is to make sure that people who’ll need to pay ATED can work out the right value ahead of the first period that it’s due
  • each 1 April falling 5 years, or multiple of 5 years, after 1 April 2012
  • when you bought or acquired it, if that is a later date
  • at the date of entry on the Council Tax Valuation Lists (or Northern Ireland Valuation List) or when it’s occupied, whichever is the earliest, if the dwelling is a new property or an existing building that’s been altered so that it is to be a dwelling if that is later than 1 April 2012

The valuation figure will be used for the first 5 ATED return periods beginning 1 April 2013 and based on the valuation at 1 April 2012, or when you bought or acquired it, if later. All properties within ATED need to be revalued again at 1 April 2017 (to cover the ATED returns for the 5 year periods starting on 1 April 2018).

You need to self-assess the value of the property. You can do this yourself or use a professional valuer. The valuation will be reported on the ATED return.

Valuations must be on an open-market willing buyer, willing seller basis. The value must be a specific price, an ‘in the range of’ valuation is not acceptable. For example £2,135,000, not ‘£2,100,000 to £2,150,000’. However, if a relief is to be claimed then a valuation based on your best judgment will be acceptable.

A valuation at 1 April 2012 will decide which ATED band the property falls into. This valuation date is also used to determine if a property falls within the new £1 million to £2 million band.

The valuation could change if the property is developed or falls outside ATED completely, or moves back in again. For example, it becomes a non-residential property and then residential again.

If HM Revenue and Customs (HMRC) challenges a valuation and find that it’s wrong, the person responsible for paying ATED may have to pay penalties as well as the increased ATED payable, plus interest for late payment.

Pre-Return Banding Check

Before you complete the ATED return, you’ll need to value the dwelling and decide whether you want to ask for a Pre-Return Banding Check (PRBC). This must be done well in advance of the filing deadline as penalties will still apply if a return is due and not received.

You can ask HMRC to confirm your view of the appropriate banding of the property by sending your valuation for a PRBC. A PRBC will only be available if you reasonably believe your property valuation falls within a 10% variance of a banding threshold.

HMRC will only confirm that they agree to the banding proposed and not the specific valuation of the property. That confirmation must not be used for any other purposes.

In some cases, the inside of the building might need to be examined as part of the check. HMRC will be able to enquire into returns and challenge valuations, but they will normally be able to accept valuations prepared by a professional property valuer.

Returns and payment

If your dwelling falls within the scope of ATED, then regardless of any reliefs that may apply, you’ll need to complete and send HMRC an ATED return. You can claim any reliefs that may be due on the return.

If you own the property on the first day of a chargeable period, you must send your completed return and payment by 30 April at the beginning of each ATED period. An ATED period lasts for one year and begins on 1 April.

For example, for the ATED period 1 April 2014 to 31 March 2015 both the return and payment are due by 30 April 2014.

However, for the 2015 to 2016 chargeable period, ATED returns for properties falling within the new £1 million to £2 million band are due by 1 October 2015 and payment by 31 October 2015. This is instead of the normal filing date of 30 April 2015.

ATED returns in respect of any chargeable period must only be submitted on or after 1 April in that chargeable period.

If your dwelling first falls within ATED on a date after 1 April in an ATED period, the return and payment are due within 30 days where purchased or 90 days where the dwelling is newly built.

For example, if you buy a property on 1 July your return and payment will be due on 31 July.

If you don’t complete and send HMRC a return or payment, or you send it late or make a mistake on it, you may have to pay a penalty and interest.

If you know you might need to pay ATED for a dwelling then you need to complete and send a return. If there’s a relief available that means that you don’t have to pay ATED, you can only claim it by completing and sending a return to HMRC. A late filing penalty will still apply even if there is a relief that reduces the liability to nil.

If a dwelling that falls within ATED is jointly owned, all the owners are jointly responsible for completing and sending the returns and payments.

If you own a number of dwellings, each of which is liable to make a payment of ATED, you’ll need to complete one return per dwelling. So where there’s a liability to pay ATED, one return must be completed per dwelling.

A new, shorter relief return will be introduced during 2015. If you own a property or properties eligible to a relief and have no ATED liability, you can use this return. The filing date for the new relief return is 1 October 2015 for the 2015 to 2016 chargeable period. More guidance will be available soon.

You should be aware that:

  • the HMRC system doesn’t store partially completed ATED return forms so you must make sure you have all the information to hand that you need before you start to complete it
  • a return for any chargeable period should be submitted only on or after 1 April
  • you can complete a paper version of the return
  • you shouldn’t file a paper return if you’ve already filed the same return online
  • if you need to amend a return you can do this online or on paper, but not both - do this by ticking the ‘Amended return’ box
  • if you have filed a return online and have not received an acknowledgment you should contact the ATED helpline

Payment methods

You can pay ATED by:

  • Bacs Direct Credit
  • Faster Payments by online/telephone banking
  • CHAPS

You can also pay by post but HMRC recommends you pay electronically using one of the methods listed above.

When you make a payment to HMRC it’s important that you use the right reference. This makes sure your payment reaches your account and that way you won’t get reminders after you’ve paid. When you make your first return showing an amount of tax is due HMRC will send you an ATED payment reference number for making payment to your account.

Using a tax agent or adviser

You can deal directly with HMRC or appoint someone to deal with HMRC on your behalf in relation to ATED.

If you want to do this you must complete an ATED authorising your tax agent or adviser form. This authorises HMRC to communicate with your accountant, tax agent or adviser acting on your behalf in relation to ATED (including ATED related CGT). It will remain in force until HMRC receives written notice from you that the details have changed.

Tax agent or adviser

As a tax agent or adviser, you must be formally authorised by the chargeable person to deal with HMRC on their behalf. HMRC will not discuss individual personal or financial information if they have not received your client’s completed ‘authorising your tax agent or adviser’ form.

HMRC form Authorising your agent (64-8) does not cover ATED or ATED related CGT.

Reliefs

There are reliefs that might mean you don’t have to pay any ATED. You can only claim these by completing and sending an ATED return.

A dwelling might get relief from ATED if it is:

  • let to a third party on a commercial basis and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner
  • open to the public for at least 28 days a year - if part of a property is occupied as a dwelling in connection with running the property as a commercial business open to the public, the whole property is treated as one dwelling and any relief will apply to the whole property
  • part of a property trading business and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner
  • part of a property developer’s trade where the dwelling is acquired as part of a property development business the property was purchased with the intention to re-develop and sell it on and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner
  • for the use of employees of the company, for the company’s commercial business and where the employee does not have an interest (directly or indirectly) in the company of more than 10%, the employee’s duties must not include services for any present or future occupation of the property by someone connected with the company, the relief is also available where a partner in a partnership does not have an interest of more than 10% in the partnership
  • a farmhouse, if it is occupied by a qualifying farm worker who farms the associated farmland, a former long-serving farm worker or their surviving spouse or civil partner
  • a dwelling acquired by a financial institution in the course of lending
  • owned by a provider of social housing

Repayments

To claim a repayment of ATED you must tick the ‘amended return’ and ‘submitting a repayment return’ boxes on your ATED return. You must enter a reason for the repayment, for example if you’ve sold the property.

What to do if you disagree with an HMRC decision

There may be times when you disagree with a decision made by HMRC. If this happens, you may be able to challenge the decision by appealing. When HMRC makes a decision they will write and tell you.

You can appeal against:

  • an amendment to the self-assessment in your return
  • a determination of tax chargeable where no return has been filed
  • a conclusion or amendment made by a closure notice following the completion of an enquiry into your return
  • a discovery assessment where HMRC believes further tax ought to have been paid
  • an assessment to recover excessive repayment of tax
  • penalties for failure to make a return on time
  • penalties for late payment of tax
  • penalties for inaccuracies in a return

You have 30 days from the date of the decision to write and tell HMRC the grounds on which you’re appealing the decision. Write to:

Annual Tax on Enveloped Dwellings
HM Revenue and Customs
S1138
Newcastle
NE98 1ZZ

You can find more about penalties in the Compliance Handbook, which provides information about:

  • penalties for failure to file on time - CH60000
  • penalties for failure to pay on time - CH150000
  • penalties for inaccuracies - CH80000

Further information

If you have a query relating to ATED you can contact the HMRC ATED helpline. More technical queries will be referred to a specialist who will respond to you as soon as possible. At busy times you might not receive a response straight away. You should still send in your return by the deadline as late filing penalties may still apply if a return is due.