Annual Tax on Enveloped Dwellings (ATED)...the Tax on Residential Property

ATED is a tax on the ownership of a chargeable interest in residential property in the UK by a non-natural person (NNP). A NNP can be a company or a partnership with a corporate partner.

If a NNP holds an interest in a residential property, whether freehold or leasehold, and the property is valued at more than £500,000 at 1 April 2022, (or if acquired after this date cost more than £500,000), then a return is needed, whether or not any tax is due.

If you think that this applies to you, then please contact us.

Chargeable periods for ATED run from 1 April to 31 March, so the next return due will be for the year ended 31 March 2026. However, the main return is made in advance, so must be filed by 30 April 2025, only 30 days after the start of the chargeable period. Any ATED charges must be paid at the same time as the returns are filed.

If you acquire a property during the chargeable period, you have 30 days to file the return following completion.

The charge will depend on where the valuation/cost sits within the following bandings:

Whilst there are many reliefs available which may reduce the charge to nil, the relief rules are complex. Reliefs include properties used in commercially run property letting businesses or properties held as part of the trading stock of a property developer. In some circumstances, relief is also available for qualifying properties open to the general public or properties occupied by certain employees/partners, as well as farmhouses/cottages occupied by qualifying farm workers.

Relief is available to a director/qualifying farm worker if they live in a farmhouse/cottage owned by a NNP if they meet the following conditions:

1. The property must form part of the land occupied for the farming trade – the trade must be carried out commercially.

2. The property is occupied by the farmworker for the purposes of the trade. They must have substantial involvement with the day to day running of the farm.HMRC suggest that the person must work at least 20 hours on average, per week on the farm.

If a NNP wants to claim one of the reliefs, it has to file a return to do so.

Some reliefs are not available when there is, or has been, a non-qualifying individual (NQI) in occupation. An NQI is broadly anyone connected with the NNP.

Failure to file correctly or on time, or to pay on time, will lead to penalties and interest charges, even where there is no tax due. For example, if a return should have been filed by 30 April 2025 and is not filed until 1 May 2026, a penalty of up to £1,600 could be charged, even if there was no tax to pay.

The rules are complex and, if incorrectly applied, can easily result in interest and penalty charges being levied.

If you are concerned that your NNP may be subject to the ATED regime then please contact us.