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The Annual Tax on Enveloped Dwellings (ATED) was introduced in April 2013. It affects non-natural persons owning high-value property dwellings in the UK.

A non-natural person will generally be a company or particular investment vehicles e.g. unit trusts or partnerships which include companies and or investment vehicles as partners.

A dwelling is typically a residence e.g. house or apartment and includes gardens/ grounds and buildings contained within any grounds.

ATED was introduced as an avoidance measure to deter the use of companies to acquire and hold property, as a means of reducing Stamp Duty Land Tax. If property is held by a company the sale of the company shares will typically incur a Stamp Duty rate of 0.5% whereas if the sale was of a property outside a company, at least 15% SDLT would apply on a property purchase of more than 500K. In the absence of any specific legislation the sale of shares in a property company would invariably be the option most often used.

The ATED charge is based on property value bandings and these valuations must be reviewed every five years:

ATED returns are for the period 1 April to 31 March. Where a property is within the scope of ATED on 1 April the return and tax payment is due on 30 April. Where the property comes into the ATED regime after 1 April, returns and payment are due within 30 days of the property being acquired. There are tax geared and fixed penalties for failure to make returns on time.

There are reliefs available which means ATED tax is not due e.g. dwelling is let on a commercial basis. In such cases, it is still necessary to complete the return and claim relief.

For 2022/23 the charge is based on valuations on 1 April 2017 whereas the 2023/24 charge will be based on property values as at April 2022. As might be reasonably expected the valuation should be made on an open-market value basis. Where a property has only been held for part of the year the charge is pro-rated.

If the valuation is found to be incorrect there is potential for HMRC to charge interest and penalties. HMRC will carry out pre-banding checks on request if properties are within 10% of a band threshold.

The penalties for errors are dealt with in accordance with Schedule 24 Finance Act 2007 and can be levied at up to 100% of the tax incorrectly assessed in the ATED return.

The ICAEW have announced that HMRC are now enquiring into whether the correct bands have been used in certain ATED returns.

Corporates holding UK property prompted to check ATED | ICAEW

In the five-year period to April 2022, residential property prices have increased significantly and HMRC are clearly seeking to send a message that they are looking to investigate the use of incorrect valuations and therefore underpayments of ATED tax.

The downside of failing to make correct ATED returns is potentially costly and expert help should be sought to ensure full compliance with the rules.

If you have any questions about ATED or need help complying with filing obligations please contact UK Landlord Tax on 01902 711370 or email enquiries@uklandlordtax.co.uk

If you found this article informative then why not read our guide to reporting and paying capital gains tax on UK property or allowable expenses for landlords next?

Thandi Nicholls Ltd
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