Understand what Annual Tax on Enveloped Dwellings (ATED) is, whether it affects you, and if it does, what you may need to do.
Previously called Annual Residential Property Tax, ATED is a tax payable by companies that own high value residential property (a ‘dwelling’). It came into effect from 1 April 2013 and is payable each year.
What is ATED
Most residential properties (dwellings) 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 Tax Return for your property if all of the following apply:
- it’s a dwelling (see below for definition)
- it’s situated in the UK
- it was valued at more than £2 million on 1 April 2012, or at acquisition if later
- it’s 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 is worked out using a banding system based on the value of your property. You need to find out which band the value of your property falls into.
Annual chargeable amounts
The annual chargeable amounts for ATED are increased each year in line with the Consumer Prices Index (CPI). You must ensure that you calculate your liability based on the correct charges before filing your return as they are subject to change.
Budget 2014 announced a reduction in the threshold from £2 million to £500,000 to be introduced over 2 years.
From 1 April 2015 a new band will come into effect for properties with a value greater than £1 million but not more than £2 million with an annual charge of £7,000. For those persons who fall into this new threshold there’ll be a transitional rule where returns will be due by 1 October 2015 and payment by 31 October 2015.
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. For future years these charges will be indexed in line with the previous September CPI.
This guidance will be updated before these chargeable periods to take account of the changes.
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 .
Who will need to pay 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 is a dwelling
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 is 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
For example, where the freehold interest is owned by one person (perhaps the company) and a leasehold interest is owned by another (perhaps an individual connected to the company). However, special rules apply where an interest is held by an individual and a company, so that the aggregation only occurs where the company interest is valued at more than £500,000.
Some buildings are not deemed to be dwellings and so aren’t included under ATED, these are:
- guest houses
- boarding school accommodation
- student halls of residence
- military accommodation
- care homes
If a company owns an 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 will apply even where a person connected with the owner is in occupation.
Find more at section 35 of the ATED Technical Guidance.
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 in 5 years time, which will be 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 will fall into for 5 years. This 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 HMRC challenge 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 (PRBC)
Before you complete the ATED return, you’ll need to value the dwelling and decide whether you want to ask for a 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 to those who reasonably believe that their 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 a return on which you can claim any reliefs that may be due.
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 the first year of ATED (1 April 2013 to 31 March 2014) there was a transitional arrangement where the return was due by 1 October 2013 and payment by 31 October 2013.
For the ATED period beginning 1 April 2014 and for all future years, the return and the payment will be due by 30 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.
If your dwelling first falls within ATED on a date after 1 April in an ATED period, then 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 would 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 (you’re ‘potentially liable’) 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.
You should note that:
- the HMRC system does not 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 paper version is available if you prefer to complete your ATED return form on paper
- you should not file a paper return if you have already filed the same return online - if you need to amend a return you can do this online or on paper, but not both, by ticking the ‘Amended return’ box - if you have filed a return online and have not received an acknowledgment please contact the ATED Helpline
You can pay ATED by:
- Bacs Direct Credit
- Faster Payments by online/telephone banking
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. This is known as appointing an agent.
If you wish to appoint an agent to act on your behalf 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.
Important - HMRC form 64-8 for other tax matters does not cover ATED or ATED related CGT.
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
A separate return is needed for each property claiming a different relief. If you’re claiming the same relief for more than one dwelling HMRC will accept a single return. However you must still send the same details for each property as required on the return.
The property details for the other dwellings must be provided in a PDF file with ‘ATED RELIEF’ in the title and sent to HMRC by email at the same time as the return is filed. You can do this by using the ‘additional information’ email address shown in the property section of the return. The information you must provide (in a PDF file) must include:
- property title number (if any)
- address and postcode
- date of acquisition
- actual value of dwelling
- whether a professional valuation has been obtained in the period covered by the return
- date of valuation
- any relevant PRBC reference
You should use the online ATED return form to notify HMRC of a change of circumstances which may result in a repayment of tax already paid for the year or further tax being due.
To claim a repayment of ATED you must amend your ATED return by ensuring the ‘amended return’ and ‘submitting a repayment return’ boxes are ticked. You must enter a reason for the repayments, 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, which you can appeal against, HMRC 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. You should write to:
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
More useful 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 there may be a delay in receiving a response, but do not delay sending a return by the deadline as late filing penalties may still apply if a return is due.