Don’t get caught out – be clear on ATED updates

ATED (Annual Tax on Enveloped Dwellings) was introduced to discourage high-value property in the UK being acquired or owned by companies, whose main intention is to reduce the payments made through taxes such as stamp duty when these properties are subsequently sold. It also affects structures put in place to lessen the effects of inheritance tax.

This tax is payable if you are deemed to be a ‘non-natural person’ and own high-value UK residential properties defined as ‘an enveloped dwelling’ (see definitions below).

As with many lesser-known taxes, there are rules, regulations and exemptions that surround this tax, plus, since its introduction on 1 April 2013, several different changes have been introduced, the most recent of which came into play on 1 April 2016.

The application of ATED

Chargeable periods run from 1 April to 31 March, and is applicable to UK properties valued over £500,00 acquired after 1 April 2013 by a non-natural person, fully or partly. The tax is charged proportionally, according to the date the property was purchased or acquired.

The ATED ‘Timeline’

As you can see from the table below, the bands have changed every year. In April 2015, the government introduced the £1-2million property value band, and in April 2016 the lower band became £500,000 to £1million.

Property valuations relate to certain valuation dates, which are updated every 5 years. Current properties are taxed on their value at April 2012, but this is due to be updated on April 2017. However, it is worth noting that if owners make changes to the property within the five-year time scale that increase the value of the dwelling, a new ATED return is required to reflect the new valuation.

Value of property 2013-14 annual payment 2014-15 annual payment 2015-16 annual payment 2016-17 annual payment
£500,00 – £1million 0 0 0 £3,500
£1million – £2million 0 0 £7,000 £7,000
£2million – £5million £15,000 £15,400 £23,350 £23,350
£5million – £10million £35,000 £35,900 £54,450 £54,450
£10million – £20million £70,00 £71,850 £109,050 £109,050
More than £20million £140,000 £143,750 £218,200 £218,200

Exemptions

There are, of course, exemptions. Certain types of property are exempt from paying this tax, which includes:

  • Charitable companies using the dwelling for charitable purposes
  • Properties not classed as dwellings
    • Hotels
    • Guest houses
    • Boarding schools
    • Hospitals
    • Student halls of residence
    • Military accommodation
    • Care homes
    • Prisons

Relief is also available in certain situations. These include:

  • Caretaker relief – if the caretaker occupies on flat in a building as part of his employment, or farmhouse occupied by farmworker
  • Property rental
  • Property development
  • Financial institutions acquiring property through lending
  • Social housing
  • Properties open to the public for at least 28days a year.

Definitions

Non-natural persons – a company, a partnership with a corporate member or a collective investment scheme.

Enveloped – a property owned by non-natural person that is said to be ‘wrapped’.

Dwelling – a property is considered to be a dwelling if all or part of it is, or can be, used as a residence. This includes all the grounds and gardens, and any buildings on the grounds.

What to do now?

This is a self-assessed tax, and requires property owners that meet the regulations to complete an ATED return. A market value is required on the property to calculate the banding rate.

Late returns will attract penalties; 30 days late will incur a fee of 5% of the tax due, and after 3 months there is a daily charge of £10 a day up to £900 maximum, so ensuring a prompt return is crucial.

How Anderson, Wilde and Harris can help

There are various options to consider when faced with ATED, and Anderson, Wilde and Harris can advise the best option. These include:

  • Maintain the structure as it is and pay the ATED
  • Apply for relief, or exemption, if applicable
  • Consider unwinding into direct ownership, or hold a nominee arrangement

Following assessment of your property to determine whether it is liable to ATED, we will help with:

  • Property valuation
  • Registration
  • Filling in ATED forms

With extensive knowledge in property tax and regulations, we can provide you with up-to-date information, ensuring you are always at the forefront of any advancements in this sector.

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