What is ATED?
First implemented on the 1st April 2013, the annual tax on enveloped dwellings (or ATED for short) is a charge on specific high-value residential properties. It’s an annual tax on properties owned by non-natural persons, including for-profit companies, collective investment schemes, and company partnership arrangements, both from the UK and from overseas.
ATED was implemented primarily as a measure against SDLT avoidance schemes that utilised non-natural entities to effectively dodge taxes on property ownership. However, it also ties into UK inheritance tax mitigation and other non-tax structures and issues.
How much is the annual ATED charge?
This charge is primarily based on the value of the property in question but increases annually through rates dictated by the consumer price index. Here are the 2019/20 rates showing the annual charge based on the property value:
|More than £0.5m but not more than £1m||£3,650|
|More than £1m but not more than £2m||£7,400|
|More than £2m but not more than £5m||£24,800|
|More than £5m but not more than £10m||£57,900|
|More than £10m but not more than £20m||£116,100|
|More than £20m||£232,350|
The ATED may be calculated differently for properties that are held for only a part of a year as well as those that move in and out of ATED applicability.
As part of the process of determining the annual charge, valuations have been required every five years beginning with 1st April 2012. The most recent valuation date was 1st April 2017, which covered the ATED charges each year from 1st April 2018 to 31st March 2023. As a result, the next valuation date will be 1st April 2022 and will cover from 1st April 2023 to 31st March 2026.
Initially, during the first ATED period, these annual charges were only in place for properties valued at over £2m on the 2012 valuation date and beyond. As of the 2015/16 chargeable period, this expanded so that properties valued at £1m and above we include and since the 2016/17 period also includes properties valued at over £500,000
To ensure the correct annual charges, a pre-return banding check is available from HMRC if the owner believes the property value is with a 10% range of the banding thresholds and don’t have other methods of relief to reduce the charge.
Essential dates during each ATED period
Your ATED return is due and tax is payable for every annual period. The following submission and payment dates must be followed
· The first 30 days of the chargeable period if the ATED is applicable to the property within this period
· The first 30 days of the ownership of a newly acquired property during the chargeable period
· The first 90 days of the earliest date that a property becomes a dwelling for council tax purposes, is newly constructed, adapted to become a dwelling, or is first occupied as a dwelling. Off-plan transactions including an interest in a building or part of a building built or adapted for use as a dwelling must follow the normal 30-day deadline, however.
Late filing and payment of your ATED can result in the same penalties as would apply for late self-assessment payment and filing.
Qualifying for relief and exemption
Furthermore, if the property is specifically used for certain special reasons, it may be applicable for some relief from ATED charges. These reasons include:
- Dwellings rented commercially with the aims of a profit
- Property development business and property trading business properties
- Working farmer-occupied farmhouses and farmhouses occupied by former long-serving Famers (or surviving civil partners and spouses)
- Properties used as employee accommodation by specific trading businesses. For this qualification, the occupier’s interest must be less than 10% of trade profits or they must not be entitled to a large share of the company entitled to property or the property itself larger than 10%
- Properties run as part of a commercial trade based on a view to profit that is open to the public for a minimum of 28 days a year
The above and other available reliefs can reduce the ATED charge to nil. This must be claimed through a Relief Declaration Return, a separate one of each required for every different type of relief applied for. If successfully applied for, that single declaration will apply to all properties owned by the same non-natural person, providing the same relief is applicable to each of them. Declarations must be filed following the same deadlines as the ATED returns and payments.
Furthermore, the are exemptions for properties held for charitable purposes, so long as they are not occupied by donors or their associated. Public bodies and bodies established for national reasons are also amongst those non-natural owners exempt from ATED.
Besides SDLT and ATED payments, there is a further ATED-related capital gains tax that is applicable to all non-natural persons who own property that has qualified for ATED charges for one day or more during the ATED chargeable period. This ATED-related CGT is applicable for periods up to the 5th April 2019. It also applies to all companies that have disposed of ATED chargeable property after the 5th April 2013.
This charge has been prioritized over non-resident CGT charges for years up to and including 2018/19. However, the ATED-related CGT has been abolished from 2019/20 onwards as a result of the extension of the non-resident CGT for non-residential UK properties as of 6th April 2019. ATED CGT Is charged on the disposal of residential property as a rate of 27%, but relief is available to owners of properties disposed of due to reasonings outside of the beginning of ATED charges.
Any properties used as dwellings that are relevant to the ATED CGT charges are to have their values rebased from the date during which the property first became liable to ATED charges. This date changes depending on the changing threshold of the ATED’s scope. For instance, qualifying properties worth over £2m will be rebased to their value on 5th April 2013, properties worth over £1m but not over £2m will be rebased to their value on 5th April 20, and qualified properties worth over £500,00 but not over £1m will be rebased to their value on 5th April 2016.
If there has been an increase in value since the rebasing date, then it may qualify for further ATED-related CGT charges on a following disposal. Any chargeable gain on these properties can also be applicable for a proportionate reduction for any day that a property was applicable for ATED relief under the qualifications mentioned above. A rebasing treatment can be disapplied by an irrevocable election, which may be relevant if the property has had a subsequent decrease in value.
ATED-related capital losses may be offset only against ATED-related chargeable gains realised in the same year, or they may be carried forward and offset against future ATED-related gains. Where a gain is assessed as an ATED-related gain, no other tax charge will apply to that gain. It is, however, possible for disposal to give rise to a gain that consists of both ATED-related and non-ATED-related gains. Where this occurs, CGT will be payable in respect of the ATED-related gain. The non-ATED-related gain may be liable to corporation tax or CGT depending on the relevant charging provision.
The 15% SDLT charge
During the acquisition of dwellings bought by non-natural persons with chargeable considerations of over £500,00, there is now a 15% stamp duty land tax charge.
The 15% rate could be replaced by the higher residential SDLT rate (3% more on top of the usual SDLT residential rates) provided that the property qualifies for relief. For a purchase of a mixed residential/commercial property interest or the acquisition of six or more dwellings, it is necessary to apportion the consideration between the two elements on a just and reasonable basis – the 15% rate continues to apply to the residential component.
Furthermore, the 15% may still be applicable if six or more residential properties are acquired provide that any of the individual properties are within the scope of the 15% SDLT charge, though non-residential rates are still applicable to the properties out of it. As such, it’s important to seek advice on the SDLT charges that could arise as a result of a residential property transaction before the contract exchange.
Furthermore, there may be a further 1% SDLT surcharge for the purchase of residential property in England and Northern Ireland by non-residents. This could be in effect as early as 2020.
Ensuring you are compliant
If you are an owner of UK residential property that is relevant to the ATED charges mentioned above, you must consider how they could affect you in time for the 2019/20 ATED period. It’s recommended you seek advice if you have ownership in any properties valued at over £0.5 mil as of 1st April 2017. Failing to complete the ATED return or to apply for relief if you are affected by the legislation will result in penalties so seeking advice on them is highly recommended.
If you have any further questions please don’t hesitate to contact one of the team.