Annual Tax on Enveloped Dwellings

(Updated valuations required as of April 2017)

In April 2013, the Government introduced a new tax on high-value properties owned by ‘non-natural persons’.  This is known as the Annual Tax on Enveloped Dwellings (ATED) and the government intended it to discourage holding properties within a corporate structure, which was previously a way of reducing or avoiding Capital Gains Tax (CGT).  Other organisations covered under the wording of the act such as property developers and farmers may be able to claim relief, but an annual return must still be lodged to avoid a penalty.

As the value at which ATED applies to properties has steadily fallen, from £2 million in 2013 to £500,000 in 2016, more and more property owners are now affected by this charge.  ATED returns are made in April for the following financial year. So, with April 2017 fast approaching, it is important for anyone who owns a building through a company or who is responsible for a property portfolio owned by a company to consider whether they own any buildings that might be covered by this tax.

How much is the tax?

The tax is paid annually and, for 2016-2017, is as follows. New rates for 2017-2018 are not yet published, but it is likely to rise at least in line with inflation and potentially significantly more.

Property Value 2016-2017
£500,000 – £1 million £3,500
£1 million – £2 million £7,000
£2 million – £5 million £23,350
£5 million – £10 million £54,450
£10 million – £20 million £109,050
£20 million and up £218,200

What properties does this apply to?

The legislation now applies to dwellings in the UK valued at over £500,000.  Dwellings are defined as properties suitable for use as a single dwelling, or in the process of being constructed or adapted for such use.  In assessing the value of the property, gardens and grounds are included as well as any buildings within them.  Flats within a block are each valued individually, however.

The act does explicitly exempt some properties that are used as accommodation; this includes hotels and guest houses, boarding schools and student halls of residence, military accommodation, prisons, care homes, and hospitals.

Do I have to submit a return?

If you are responsible for a dwelling, and it is owned or partially owned by a company, partnership or collective investment scheme, you will have to submit a return.  There are a variety of reliefs available to reduce or eliminate the tax for commercial letting organisations, property traders and developers, companies that maintain living accommodation for employees, and others. Properties owned by charitable organisations and public bodies are also exempt.

However, even if you believe there is no tax payable because you are covered under a relief or exemption, you must still complete a return by 30th April 2017 and make a claim for the relief, or risk a fine.

Do I need a valuation?

For the first five years of the regulations being in place, assessment of charges was based on a valuation of the property done in April 2012.  It is important for property-owners who may fall under these regulations to be aware that a new valuation is now required in April 2017. This will be used for the tax year ending in April 2018, and for the following five years.

Given the changes in the property market in the last five years and the fact that the ATED band has dropped so substantially in that period, you may well have properties that were previously well outside the bracket but now could fall within it.  To avoid possible penalties, your best approach is to secure a professional valuation now.

How can Anderson Wilde and Harris help?

Anderson Wilde and Harris are RICS registered Chartered Surveyors that conduct residential property valuations annually. With our extensive experience and knowledge in the property sector, and our understanding of the HMRC’s requirements, we would be happy to provide you with a consultation and a full valuation report that meets all the required standards.

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