Playing the Annual Tax on Enveloped Dwellings property game - a reminder of the rules

Depending on what area of tax you are reviewing, you can come across all kinds of variations in the meaning of that one little word:

  • property that are chattels
  • property that is real estate
  • property that is intellectual
  • property owned by companies
  • property owned by individuals.

And the list goes on… dividing and sub-dividing each category further. Ultimately, it seems like there isn’t any part of the Taxes Acts that does not concern itself with property and it is constantly evolving. 

Successive governments have added their own stamp on how best to get the most revenue yield out of property. If one thing is certain, this is set to continue as those keeping a watchful eye on treasury revenues seek to root out fresh and innovative ways of making property, in all its various types, pay.

It is a fascinating area and one could easily devote a lifetime to the study of how tax on property in its widest sense has evolved both historically and politically to arrive at the present day. However, academics aside, the world of property taxation is also a practical one and when it comes down to it, can also be a costly one if the rules of the game are not carefully followed.

“Real Estate” and “Owned by Companies”, two headings which, together with a couple of subheadings, combine to create one game “Annual Tax on Enveloped Dwellings” (ATED). A game of which the rules are still relatively unfamiliar to many businesses.

ATED was formulated when the Government was making targeted moves against wealthy foreign entities purchasing expensive London real estate, seemingly with impunity and with no added benefit to the Treasury. Almost 10 years down the line, UK and foreign corporates and other specific “non-natural entities” are either now well and truly familiar with the requirements of this additional annual compliance regulation or completely oblivious to it.

However, being oblivious is no excuse in the eyes of HMRC. They will rigorously pursue the debt due to them, in the form of penalties from failing to submit annual ATED returns, even if there is no ATED charge to pay at the end of the day. 

The penalties for failing to submit even a non-chargeable ATED return on time can cost a significant £1,600 in penalties alone for just one year. In many cases properties are held for at least a couple of years after development or following rental, this can easily escalate to remarkably expensive penalties.

The decision of a First Tier Tribunal Hearing last year, Heacham Holiday Limited v HMRC, which specifically considered the right of HMRC to “retrospectively” charge penalties has given a glimmer of hope that there might be a more reasonable view taken of the procedural aspects of the penalty regime. However, it is not be taken as any guarantee of success and certainly prevention rather than cure signals the best chance of success.

If you think there is a possibility that your company or partnership should have completed an ATED return for the current year 2020/21 and as a reminder, the date to make that return has only just passed us (30 April) do take immediate action to get in touch with your usual UHY adviser to plan to file a return. 

Remember that HMRC will not automatically contact you to make an ATED return. They do not systematically analyse accounts or corporation tax returns looking for property developments or properties that are rented out and will not alert your company to the requirement to file a return. This is a self-assessment situation in its rawest form and to ignore the rules is to gamble with the penalty dice.

The next step

For more information, get in touch with your local UHY adviser. 

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