The Annual Tax on Enveloped Dwellings (ATED) traditionally only affected the wealthiest landlords, who had put their property affairs into limited companies and owned property worth over £2 million.
However, the threshold for ATED has changed. Now, companies owning UK residential property worth in excess of £500,000 may be liable for ATED.
This has clear implications for some landlords within the Private Rental Sector who have recently switched to or are planning to use a buy to let mortgage through a limited company.
With property prices in the South East being traditionally more expensive than other areas of the UK, and experiencing highest rates of price growth, it is expected that landlords with investments in these areas may be the more prolific group affected.
The rules around ATED may require many more buy-to-let landlords to complete an ATED return, than the proportion who actually end up with an ATED tax liability to settle. Certainly the lower threshold will mean more people have to act on ATED than was previously the case.
However, what it is vital for landlords to know is that, if their property is owned through a company structure and does fall into the £500,000-plus price bracket, relief from ATED may be applicable, but an ATED return must be completed and returned to HMRC.
Relief from ATED may be able to be claimed, if your property is:
- let to a third party on a commercial basis and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner
- open to the public for at least 28 days a year
- being developed for resale by a property developer
- owned by a property trader as the stock of the business for the sole purpose of resale
- repossessed by a financial institution as a result of its business of lending money
- acquired under a regulated Home Reversion Plan
- being used by a trading business to provide living accommodation to certain qualifying employees
- a farmhouse occupied by a farm worker or a former long-serving farm worker
- owned by a registered provider of social housing
Landlords must file an ATED return to HMRC if their property is considered to be a dwelling. This means there is, for example, a house or flat anywhere in the gardens, grounds or buildings within the property that someone can reside in, even if there is nothing to pay.
There are a number of properties that are considered exempt from the term ‘dwelling’ for this purpose, these include:
- hotels
- guest houses
- boarding school accommodation
- hospitals
- student halls of residence
- military accommodation
- care homes
- prisons
In essence, you must file a completed ATED return if your property is; classified as a ‘dwelling’, is located in the UK, owned completely or partly by, a company or partnership, or a collective investment scheme (such as a unit trust or open-ended investment vehicle) and was valued at more than:
- £2 million on 1 April 2012, or at acquisition if later, for returns from 2013 to 2014 onwards
- £1 million on 1 April 2012, or at acquisition if later, for returns from 2015 to 2016 onwards
- £500,000 on 1 April 2012, or at acquisition if later, for returns from 2016 to 2017 onwards
Returns are due to HMRC on or after 1 April in any chargeable period. There are a number of scenarios in which you could be charged a penalty (and potentially interest):
- Failure to file a return on time
- Failure to pay on time
- Submitting an inaccurate return
Concerned about ATED? Seek professional tax advice
If you own property through a company which is in excess of £500,000 and you have questions regarding ATED, your best recourse is to seek the advice of a professional tax specialist. You can find a local professional via the websites of the following professional bodies:
The Consultative Committee of Accountancy Bodies (CCAB)
The Chartered Institute of Taxation
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