Annual Tax on Enveloped Dwellings (ATED) is a yearly charge payable by companies, partnerships with at least one corporate member, and some collective investment vehicles owning an interest in a UK residential property worth more than £500,000.
What property does ATED apply to?
ATED applies to a UK property if all or part of it is used, or is suitable to be used, as a single residence or ‘dwelling’ (eg a house or flat), or is being constructed or adapted for such use. A dwelling includes any gardens, grounds and buildings within them. If a property is partly used as a dwelling and partly non-residential (eg a flat with a shop below), only the value of the residential part is used to determine whether ATED applies. Where there’s more than one dwelling in a property (eg several self-contained apartments with no private access between them), each dwelling is considered separately for deciding any ATED charge.
ATED doesn’t apply to: boarding school accommodation, student halls of residence, armed forces accommodation, institutional homes, care homes, hospitals, hospices, prisons, and hotels and similar establishments.
How is ATED calculated?
The amount of ATED payable is calculated using a banding system based on the value of each dwelling. The rates for the ATED year from 1 April 2024 to 31 March 2025 are as follows:
The ATED due for each band increases in line with inflation each year.
If a property is acquired during the ATED year or qualifies for a relief or exemption for part of the year, the ATED payable is apportioned based on the number of days the property is owned in the year.
How are dwellings valued for Annual Tax on Enveloped Dwellings?
Where property is acquired from a third party, the valuation for ATED purposes is taken to be the purchase price.
Thereafter, the property values used to calculate ATED charges must be recalculated on specific valuation dates. For ATED years 2023-24 to 2027-28 the relevant valuation date is 1 April 2022, unless the property was acquired after 1 April 2022, in which case the valuation date is the date of acquisition. There are revaluation dates every five years, so the next revaluation date is 1 April 2027 which will apply for five years from 2028-29. A revaluation will also be needed if there is:
- A substantial acquisition – for example buying a new dwelling, renewing a lease, or adding a parcel of land to an existing dwelling, where the chargeable consideration is £40,000 or more, or
- A substantial disposal of part of a dwelling where the chargeable consideration is £40,000 or more.
For example, if a company owns a single dwelling worth £5.2 million, which has a large garden and doesn’t qualify for any ATED reliefs, it would have needed to have paid ATED of £71,500 by 30 April 2024. If on 1 November 2024, a portion of the garden is sold for £100,000, this is a substantial disposal of part of the dwelling and triggers a revaluation of the whole dwelling for ATED purposes. When considering the 2025-26 ATED return for this property, 1 November 2024 will be the relevant valuation date – and a revaluation can mean that more ATED is due, even though part of the property has been sold.
There’s no legal requirement for a formal valuation, but we recommend you use a reputable surveyor so that the valuation could stand up to scrutiny in the event of an HM Revenue & Customs (HMRC) enquiry.
If a valuation falls within 10% of one of the ATED thresholds (for example, if your property is valued at £1.9 million, which is within 10% of the £2 million threshold), then you may wish to consider applying to HMRC for a pre-return banding check (PRBC) in advance of submitting your ATED return. A PRBC allows HMRC to agree, disagree or ask for further information to confirm that your dwelling is banded correctly before your return is submitted. HMRC will typically respond to a PRBC application within 30 working days, though this can take longer, so we recommend that this process is started as early as possible if relevant to you.
Are there exemptions and reliefs from ATED?
Subject to various conditions, charitable companies, public bodies and bodies established for national purposes may be exempt from ATED. If this is the case the entity is outside the scope of ATED and doesn’t need to file returns.
Reliefs may apply to dwellings (again subject to various conditions):
- Used in a property rental, property development or property trading business,
- Available to people under the Homes for Ukraine Sponsorship Scheme,
- Open to the public for at least 28 days a year,
- Held by a financial institution in the course of lending,
- Lived in by certain employees or partners of qualifying businesses,
- Used as a farmhouse, or
- Owned by a registered provider of social housing.
Even if full relief is available and no tax is due, an annual return (or ‘relief declaration return’) must be made to claim the relief.
When must ATED returns be filed and the tax paid?
The ATED year runs from 1 April and unlike most UK taxes, returns are filed and any tax paid at the start of the period rather than retrospectively. For example, the returns for the period from 1 April 2024 to 31 March 2025 had to be filed between 1 and 30 April 2024 and any payments made by 30 April 2024. Returns and payments for properties bought during the year are due within 30 days of purchase, and in the case of newly-built properties, within 90 days of the earlier of it being first occupied or becoming a dwelling for Council Tax purposes.
Interaction with other rules
The ATED rules are very similar to the Stamp Duty Land Tax rule which imposes a flat rate of 15% on certain property acquisitions. The presence or otherwise of an ATED charge may indicate that a liability to this 15% flat rate charge has been missed, and this is often more of an issue than the ATED charge itself.
How we can help
Although the ATED charge may itself be relatively small in a year, a failure to make returns can lead to significant multi-year liabilities, interest and penalties if not dealt with in a timely manner. Saffery can provide a full ATED compliance service, including preparing and amending returns, and advising on reliefs and the relevant valuation dates of your properties for ATED purposes.
This briefing note is not comprehensive and we recommend taking professional advice, based on your particular circumstances, before taking any action with regard to annual tax on enveloped dwellings or tax matters generally.
To find out more about Annual Tax on Enveloped Dwellings, please get in touch with your usual Saffery contact, or talk to Adam Kay.
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