Annual Tax on Enveloped Dwellings (ATED) on (£500,000+) residential properties

13 March 2017

Annual Tax on Enveloped Dwellings (ATED) was first introduced in 2013 on high-value UK residential properties worth over £2 million which are owned by companies, partnerships with corporate members and certain investment vehicles. ATED has created a new filing obligation at the beginning rather than after the year, with penalties charged for late filing.

From 1 April 2016 the scope of ATED widened significantly. Every company or corporate entity owning UK residential properties worth over £500,000 must now file an ATED tax return and either pay the appropriate ATED charge or claim the appropriate relief.

There are a number of reliefs available that can eliminate or reduce the ATED charge but these are not automatically given. An ATED return must be filed to claim the appropriate relief – the relief is not automatic.  

An ATED year runs from 1 April to 31 March and an ATED return (with payment where applicable) must be submitted by 30 April within the year.   Therefore, for every company or corporate entity that owns residential property with a value over £500,000,irrespective of the use of the property on 1 April, must file 2017/18 ATED return by 30 April 2017 and should similarly have complied with the ATED obligations for 2016/17 period.

Where a residential property worth over £500,000 is acquired during the year, an ATED return must be filed within 30 days of acquiring the property.

Failure to submit an ATED return will result in late filing penalties even if no tax is payable due to a relief. Many unwary taxpayers have faced hefty penalties for non-compliance even where there was no charge to tax. Failure to pay the ATED charge promptly will also result in additional late payment penalties.

Relief can only be claimed by completing an ATED return and submitting this to HMRC.

The valuation used for the first five ATED return periods beginning 1 April 2013 will usually be the valuation at 1 April 2012 or at the date when the property was acquired it, if later. All properties which are subject to ATED will need to be revalued again at 1 April 2017, and this valuation will then apply for to ATED returns for the five year periods starting on 1 April 2018.

Valuation is a principally a matter of self-assessment, although a professional valuation can of course be sought as appropriate. HMRC will also need to confirm the banding they will accept for the property via a Pre-Return Banding Check (PRBC). A PRBC will only be available to those who reasonably believe that their property valuation falls within a 10%variance of a banding threshold.

Non-resident CGT (NRCGT)

With effect from 6 April 2015, all non-UK resident persons (including companies) are subject to NRCGT on the disposal of UK residential property – to the extent that any gain realised relates to a period since 6 April 2015. The company will usually pay NRCGT on any gain which accrues on or after 6 April 2015, but a company can make an irrevocable election to pay NRCGT on another basis (such as the whole of the gain on a time-apportionment basis).

The applicable rate of NRCGT for companies is 20%. NRCGT will only apply to the extent that the gains are not subject to the ATED-related gains charge mentioned below. The relevant valuation date for NRCGT is 5 April 2015.

ATED related CGT

As more properties are brought into the scope of ATED, they will also potentially come into the scope of ATED-related Capital Gains Tax (CGT) on any later disposal. The ATED-related CGT charge will apply to any post April 2013 gains to the extent the ATED regime applied to the property during this period (i.e. ATED applied with no relief).

ATED-related CGT is charged at a rate of 28%. For new ATED band properties the relevant valuation date is 5 April 2016.

How can we help?

The introduction of ATED, ATED-related CGT and NRCGT has led to a complex array of taxes for companies holding UK residential property. The disposal of a property held by a non-UK company could potentially give rise to three different CGT charges, all of which could require different valuation dates.

We can help with the following:

  • assessing whether your dwelling is subject to ATED;
  • registration and filing of ATED returns;
  • advising on possible restructuring to take a property out of the ATED charge; and
  • tax efficient structures for acquiring UK property interests and for UK property businesses.

For guidance and advice on any ATED related issues, please contact me or your local UHY adviser.