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

Annual Tax on Enveloped Dwellings is usually referred to as ATED. This tax is generally applicable to companies (resident and non-resident in the UK) owning UK residential properties. However, not all residential properties fall under the ambit of ATED, only those whose valuation is greater than £500,000.

What is ATED?

The ATED or annual tax on enveloped dwellings is applied to residential properties with market value greater than £500,000 for the following:

• Limited company.
• partnership where any of the partners is a 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 beginning of the financial year. The return must be filed to HMRC in a requisite manner.

The taxable value will depend on the market value of your property on the latest valuation date. Here is an example to explain this phenomenon. For the chargeable period of 1st April 2024 to 31st March 2025, the return will be filed by keeping the value of the property in mind as on 1 April 2022 or the date of purchase (if later)..

The law of ATED only applies to dwellings, therefore non-residential properties or properties that do not qualify as dwellings 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 the same.

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.

Valuation date

The taxable value of the property is its market value at the end of the most recent ‘valuation date’.

The valuation date applicable to a property for an ATED period (annually from 1 April to 31 March) is either:

• The ‘standard’ valuation date – initially the valuation date was 1 April 2012, with a revaluation being required on each 5-year anniversary (1 April 2017, 1 April 2022, 1 April 2027 etc.).
• The new valuation date does not apply to the year in which the date falls, so the 1 April 2022 valuation will first apply for the ATED period from 1 April 2023 to 31 March 2024.
• If the property is purchased later than the standard valuation date, the value on the date of purchase or part disposal of the property is used.

The valuation is self-assessed meaning that you will be required to value the property either personally or with professional help and that HMRC could charge penalties if they decide to look at the valuation and find that it is incorrect.

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. The valuation is self-assessed, so either you can value it yourself or with professional help. You can take help from government bodies, such as HM Revenue and Customs (HMRC), to get to the proper and correct valuation of the property. HMRC can charge penalties if they decide to investigate the valuation and find that it is incorrect.

For this chargeable period, i.e., for 1st April 2024 to 31st March 2025, the residential properties will be valued as per the value of such property on 1st April 2022 or any later date when the property was purchased.

How to work-out ATED charge?

Well, the amount of tax paid is pre-decided by the government. As stated earlier only those companies with residential property or properties valuing more than £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:

Chargeable amounts for 1 April 2024 to 31 March 2025

For chargeable periods prior to 1 April 2023, please click here.

Relief from ATED

There are certain reliefs provided to the businesses owning residential properties as per their eligibility. If you are eligible for any of the reliefs available, you don’t need to pay ATED charge to HMRC. Your property will be eligible for relief if it is:

• let to an unconnected party on a commercial basis (property rental business).
• being developed for resale by a property developer (property development business).
• owned by a property trader as the stock of the business for the sole purpose of resale (property trading business).
• used to provide living accommodation to certain qualifying employees by a trading business.
• a farmhouse occupied by a farm worker or a former long-serving farm worker.

If the property is eligible for relief, 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 Nil return to HMRC and claim the relief by filing a relief claim declaration form.

Submission & payment deadline

• ATED returns must be submitted to HMRC by 30th April in the chargeable year. For example, for the period 1 April 2024- 31 March 2025, the return must be submitted to HMRC by 30th April 2024.
• In case you purchase a property subject to ATED legislation, 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 is 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)

Therefore, you could be subject to a maximum penalty of £1,600 even if there is no ATED charge to pay.

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 an enveloped dwelling or not?

Step – 2 – Register for ATED service online.

Step – 3 – 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 homepage of the ATED service.

Step – 4 – Make a claim in case relief is available.

Step – 5 – If entitled for any relief, submit the relief claim forms.

Step – 6– Complete and file your ATED return online (even if no ATED is payable).

Step – 7 – Do your ATED payment and fulfil your responsibility.

Procedure of ATED submission & payment

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.

Conclusion

Managing the complexities of ATED filing can be challenging. Our team is here to assist you every step of the way. Reach out to us for expert guidance and support to ensure compliance with ATED regulations and optimise your tax obligations.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.