04 April 2022
Annual Tax on Enveloped Dwellings (ATED) - where are we now?
With the ATED reporting deadline looming, and on the back of our briefing note on the Register of overseas entities owning UK property, Melissa Ellis provides a brief overview of the current UK tax issues for companies holding UK residential property.
What is ATED?
ATED is the tax which applies to 'enveloped dwellings' worth over £500,000. The ATED tax year runs from 1 April to 31 March each year.
What is an enveloped property?
Broadly, an enveloped dwelling is a UK residential property which is held by a 'non-natural person' e.g. a company.
When is the ATED deadline?
Unless an exemption or relief from the ATED charge applies, the company which holds the property has to submit an ATED return to HMRC and pay the ATED charge by 30 April each year. If the property is acquired during the ATED year, the ATED return must be filed and any tax paid within 30 days of the acquisition.
How much is the ATED charge?
The level of the ATED charge depends on (i) which ATED band the property falls into by reference to the value of the property at the relevant ATED valuation date; and (ii) the number of days in the ATED year for which the company is liable to the ATED charge.
For the ATED years commencing 1 April 2018 to 1 April 2022 inclusive, the ATED valuation date is 1 April 2017. If the property was acquired after 1 April 2017, the value at the date that the property was acquired should be used.
The current ATED charges are as follows:
|More than £500,000 but not more than £1,000,000||£3,800|
|More than £1,000,000 but not more than £2,000,000||£7,700|
|More than £2,000,000 but not more than £5,000,000||£26,050|
|More than £5,000,000 but not more than £10,000,000||£60,900|
|More than £10,000,000 but not more than £20,000,000||£122,250|
|More than £20m||£244,750|
Are there any reliefs from the ATED charge?
There are various reliefs from the ATED charge. These include the following:
- if the property is let on a commercial basis to an unconnected third party;
- if the property is being developed for resale by a property developer;
- if the property is open to the public;
- if the property is used by a trading business as living accommodation for qualifying employees; or
- if the property is a farmhouse occupied by a farm worker or a former long-serving farm worker.
Relief from the ATED charge has to be claimed by submitting a Relief Declaration Return to HMRC by 30 April each year.
Are there any exemptions from the ATED charge?
Charitable companies that use residential property for charitable purposes are exempt from the ATED charge as are public bodies and entities established for national purposes.
What taxes do I need to be concerned with if my property is held through a company?
In addition to the ATED charge, the company will be liable to pay Corporation Tax on any rental income received or if a gain arises on the disposal of the property. There may also be other taxes for the shareholder of the company if certain anti-avoidance rules apply.
Does an offshore company holding structure still protect me from UK Inheritance Tax?
No – since 2017 the majority of companies that hold UK residential property will be treated as being effectively transparent for IHT purposes. This will mean that the shareholder will potentially be subject to a 40% tax charge on death (if an individual) or 6% tax charges every ten years (if a trust). Sometimes both charges will apply.
Will I pay tax if I ‘de-envelope’
The process of de-enveloping the property (i.e. transferring the property out of the company) usually gives rise to a Corporation Tax liability for the company and potentially a Capital Gains Tax liability for the shareholder(s). However, once the property has been de-enveloped, the ATED charge will no longer be payable. In addition, an amended ATED return can then be submitted in order to claim a refund of the ATED charge in respect of the remainder of the ATED year for which the company is no longer liable.
Again, due to various anti-avoidance rules in this area, the shareholder of the property-owning company may also be liable to further taxes as a result of the de-enveloping.
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This publication is not intended to provide a comprehensive statement of the law and does not constitute legal advice and should not be considered as such. It is intended to highlight some issues current at the date of its preparation. Specific advice should always be taken in order to take account of individual circumstances and no person reading this article is regarded as a client of this firm in respect of any of its contents.
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