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Annual Tax on Enveloped Dwellings is usually referred to as ATED. This tax is applicable only to those companies that have residential property in the UK. However, not all residential properties fall under the ambit of ATED, only those whose valuation is more than or equal to £500,000.

What is Annual Tax on Enveloped Dwellings? How to Calculate ATED?

What is ATED?

The ATED or annual tax on enveloped dwellings is applied to the residential properties of the value equal to or more than that of £500,000 for the following companies:

  • A partnership with corporate members,
  • Collective investment scheme or an open-ended investment company.

If the property for any company mentioned above does fall under the ambit of ATED, an annual return is to be filed at the end of the financial year. The return must be filed to HMRC in a requisite manner.

The valuation of the tax will depend on the cost of your property in the preceding year. Here is an example to explain this phenomenon. For the return period of 1st April 2018 to 31st March 2019, the return will be filed by keeping the value of the property in mind as on the date of purchase in 2017 or anytime later than that.

The law of ATED only applies to the dwelling and non-residential properties are outside the scope of ATED.

What are Dwellings with Respect to ATED?

As per the UK government, dwellings or the term “dwellings” has been described as a part of the property that you own or the entire property that is being used or can be used for residential purposes. Grounds, other related buildings under your property, gardens and any other portion of your property can be regarded as dwellings.

However, it must be remembered that the valuation of every property will be different as per their actual use. No two properties can be assumed to be valued as same.

On a similar topic, there are some properties that have been excluded from the ambit of dwellings, here is a list of these properties:

  • Hotels
  • Guest Houses
  • Hospitals
  • Halls for students and their accommodation
  • Boarding school’s accommodation
  • Care homes
  • Military accommodation
  • Prisons
  • Residential properties owned by charitable organisations for the purpose of charity.
  • Properties held by public bodies & bodies incorporated in the nation’s interest.
  • Properties exempt from inheritance tax conditionally (based on conditions).

The section 19 of ATED explains the scope and the meaning of “Dwellings” elaborately.

What will be the Value of your property?

To know the value of your residential property for the purpose of filing a return, the valuation has to be done in respect of the date such property was acquired on. If the valuation on your end is not clear, the help of government bodies, such as HM Revenue and Customs (HMRC), can be availed to get to the proper and correct valuation of the property.

For this chargeable period, i.e., for 1st April 2018 to 31st March 2019, the residential properties will be valued as per the value of such property on 1st April 2017 or any later date when the property was purchased. However, for properties that have been purchased before the said date, the return’s amount will be evaluated again as per the value of the property on 1st April.

How to Work-out Annual Tax on Envelop Dwellings?

Well, the amount of tax paid is pre-decided by the government. As stated earlier only those companies with residential property or properties valuing equal to or more than that of £500,000 will be required to file ATED with HMRC. The valuation of such returns is done by a banding system. In case you are not aware of the bands, you can get in touch with HMRC and ask for a pre-banding check to evaluate your liability.

Here are the basic bands and the money you will be required to pay to the government:

  • For properties that value more than £500,000 up to £1 million the annual tax will be £3,700.
  • For properties that value more than £1 million up to £2 million the annual tax will be £7,500.
  • For properties that value more than £2 million up to £5 million the annual tax will be £25,200.
  • For properties that value more than £5 million up to £10 million the annual tax will be £58,850.
  • For properties that value more than £10 million up to £20 million the annual tax will be £118,050.
  • For properties that value more than £20 million the annual tax will be £236,250.

Relief from ATED

There are certain reliefs provided to the businesses having residential properties as per their eligibility. If you are eligible for any of the reliefs available, you don’t need to pay any tax to HMRC but it doesn’t mean that you don’t need to submit the return. If you are eligible for any of the reliefs, you still have to submit a return to HMRC and opt for the relief by filing a relief claim declaration form. The deadline for return submission is 30th April for each period.

Submission & payment deadline

  • ATED returns must be submitted to HMRC by 30th April in the chargeable year. The period is more than 11 months before the ending of relevant tax year.
  • In case you purchased an ATED property, the return and payment are due within 30 days whereas in case of new property construction, it is 90 days.

Checklist for applying ATED

  • Whether the dwelling is residential or non-residential?
  • Whether the dwelling valued at more than £500,000 or less?
  • Whether the entity or building specifically exempt from ATED or not?
  • In case of ATED return or ATED exemption, either an ATED return or relief declaration return must be submitted by the company to HMRC.

Penalties & interest

In case of Non-filing or late filing of return

  • £100 will be charged initially for the late submission of return.
  • £10 per day will be charged, if your return submission is 3 months late.
  • In case your return submission is 6 months late, a further penalty will be imposed by HMRC i.e. £300 or 5% of HMRC’s liability estimation of ATED tax (Whichever is higher)
  • In case your return submission is 12 months late, further penalty will be again imposed by HMRC i.e. £300 or 5% of HMRC’s liability estimation of ATED tax (whichever is higher)

In case of late payment of return

  • In case your payment is 30 days late, 5% of the due tax will be charged by HMRC as a penalty for late payment.
  • In case your payment is delayed by 6 months, 5% of the outstanding tax at that date will be charged by HMRC.
  • In case your payment is delayed by 12 months, 5% of the outstanding tax at that date will be charged by HMRC.

Procedure of ATED submission & payment

Step – 1 – Check whether your property is enveloped dwelling or not?

Step – 2 – If you are eligible for any exemption, claim it.

Step – 3 – Register for ATED service online.

Step – 4 – After completing your registration, you will be provided with a 15 digit new ATED reference number starting from letter X. For ex – XLAT00000123456. This number is displayed on the home page of the ATED service.

Step – 5 – Make a claim in case reliefs available.

Step – 6 – If entitled for any relief, submit the relief claim forms.

Step – 7 – Complete and file your ATED return online (If ATED is payable).

Step – 8 – Do your ATED payment and fulfil your responsibility.

Additional Information on ATED

Although ATED valuations and returns are quite easy to get done, here are some more details to help you:

  • Sections 6 and 7 of ATED help you evaluate your tax liability for residential properties that were:
    • Owned partially for the year, and
    • How to claim relief for that amount of time.
  • The returns can be filed with the ATED online service.
  • You will be liable to pay penalties when:
    • You do not pay tax on time.
    • Your tax return is inaccurate as per the actual figures.
    • You do not file for a return despite falling under the ambit of ATED.
  • You can get help or further assistance from HMRC Helpline.
  • In case you are not happy with a decision made by HMRC, you will have 30 days to write to the HMRC and appeal. Here is the address: HM Revenue and Customs Solicitors Office and Legal Services Reviews and Litigation SO790 Newcastle Upon Tyne NE98 1ZZ

ATED is mandatory to be filed and if you do not do so, you may be fined heavily.

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