The Annual Tax on Enveloped Dwellings (“ATED”)
An update – March 2020
The Annual Tax on Enveloped Dwellings (ATED) is a tax charge on ‘non-natural persons’ i.e. a company, a partnership with a corporate partner, or a collective investment scheme which has an interest in UK residential property. It does not apply to commercial property.
When the Government first introduced ATED on 1 April 2013 it only applied to residential property interests valued at more than £2 million. Since then the lower threshold has been reduced twice meaning that from 1 April 2016 property interests valued at more than £500,000 have also been subject to ATED.
The charge is based on a banding system. Assuming the property interest was held by the company on 1 April 2017, the banding is based on the value of the property at that date. The property needs to be re-valued every 5 years and so the property value and associated banding will need to be re-considered again in April 2022.
The table below sets out the respective tax charges for properties valued at more than £500,000:
|Value of property||Annual tax charge – year commencing 1 April 2020||Annual tax charge – year commencing 1 April 2019|
|More than £500,000 but not more than £1m||£3,700||£3,650|
|More than £1m but not more than £2m||£7,500||£7,400|
|More than £2m but not more than £5m||£25,200||£24,800|
|More than £5m but not more than £10m||£58,850||£57,900|
|More than £10m but not more than £20m||£118,050||£116,100|
|More than £20m||£236,250||£232,350|
Potential pitfalls and quirks of the ATED regime
The regime is deceptively complex and contains many traps which could prove very costly for the unwary.
1. A penal filing and payment regime
There are very tight deadlines for the submission of ATED returns and payment of the ATED tax charge. Those companies already in the regime must file a return and make payment for the year commencing 1 April 2020 by 30 April 2020. Different time limits apply where a company comes within ATED for the first time during a financial year but normally the return will need to be filed within 30 days of the property coming within the charge.
2. Reliefs must be claimed in an ATED return
There are various reliefs available to mitigate the tax charge. The most common reliefs are where the property is used in a commercially run property letting or property development business, or is a farmhouse occupied by a qualifying farm worker. If a company wants to claim one of the available reliefs it must file a return to claim this.
Failure to file a return renders a company liable to pay penalties typically amounting to £1,300 per year, even where relief from ATED can be claimed.
3. Partial ownership of a residential property
Where a company owns a share in a residential property, whether as joint tenant or tenant-in-common or as a corporate partner in a partnership, it is liable to pay the ATED charge based on 100% of the value of the property.
For example, a company owning 50% of a freehold property valued at £2.5m is liable to pay ATED based on the £2m – £5m band, and not the £1m – £2m band. £25,200 would be payable for the 2020-2021 year.
The charge applies to any chargeable interest in a residential property, which includes leasehold interests.
4. ATED-related Capital Gains Tax (“CGT”)
Before 6 April 2019, where ATED applied and relief could not be claimed, the company was liable to pay ATED-related CGT on a disposal of the property.
From 6 April 2019, any disposals of residential property by a company will result in corporation tax being payable on the gain arising.
If you are concerned that your company may be subject to the ATED regime and would like more information then please contact us.