A tax that’s (H)ATED!

 

The annual tax on enveloped dwellings (ATED) is, as the name suggests, an annual tax on `dwellings’ held within an ‘envelope’, usually a company. Most residential properties are owned by individuals. However, where such a property is held by a company or other collective investment vehicle, the property is said to be ‘enveloped’ – ownership of the property sits within a corporate ‘wrapper’ or ‘envelope’.

 

The ATED was introduced in Finance Act 2013. It is levied annually in respect of chargeable periods running from 1 April to 31 March. The charge is proportionately reduced where a liability only arises for part of the year.

 

It applies where a non-natural person – such as a company, a partnership with one or more corporate partners or a collective investment scheme – holds an interest in one or more UK residential dwellings (a ‘single-dwelling interest’) and that single-dwelling interest is worth more than £500,000. There is no charge if the value of that interest is less than £500,000, or where the property is owned by one or more individuals. 

 

For 2013/14, the charge is only applied to dwellings valued at more than £2 million. This was reduced to £1 million for 2015/16, and to £500,000 from 2016/17 onwards.

 

A property is a dwelling if all or part of it could be used as a residence. A house or a flat would, for example, be a dwelling. The ‘dwelling’ encompasses the property itself, and any grounds and gardens and any buildings within those grounds or gardens.

 

Not all properties that provide accommodation fall within the definition of a ‘dwelling’. Exceptions include:

• hotels;
• guest houses;
• boarding school accommodation;
• student halls of residence; 
• military accommodation;
• care homes; and
• prisons.

It is important to note that the concept of a dwelling is not limited to a property that is used as a dwelling – it applies to a property that is suitable to be used as a dwelling. The test applies at the effective date. 

 

Exemptions are available for properties by charitable companies, public bodies, and bodies established for national purposes, if the associated conditions are met.

 

There are also various reliefs available. These may be claimed by:

• property rental businesses;
• dwellings open to the public;
• property developers (including exchange of dwellings);
• financial institutions acquiring dwellings in the course of lending;
• occupation by certain employees or partners;
• farmhouses; and 
• providers of social housing.

As far as property rental businesses are concerned, relief is available for each day that the property is being exploited as a source of rents or other receipts. The business is a qualifying property rental business for the purposes of the relief if it is run on a commercial basis with a view to profit.

 

The value of the dwelling determines not only whether the ATED applies, but also the amount of any charge. Valuing the dwelling is fundamental to the charge. 

 

The valuation must be on an open-market (‘willing buyer, willing seller’) basis and must be a specific amount. The property must be valued in pounds sterling at the valuation date. A professional valuation can be obtained, but this is not essential. 

 

The valuation date depends on the date on which the property was acquired. There are two dates to consider – an initial valuation date and a revaluation date. The initial valuation date is 1 April 2012 where the property was owned on that date, or the date on which the property was acquired where this was after 1 April 2012. 

 

The revaluation date is every five years from 1 April 2012, regardless of when the property was acquired. The fixed revaluation dates are 1 April 2017, 1 April 2022, etc. The value of the property for any chargeable period is the value at the later of its initial valuation date and the most recent revaluation date.

 

A company acquired a residential property on 6 June 2007. It falls within the scope of the ATED. 

 

The initial valuation date is 1 April 2012. For 2019/20, the most recent fixed revaluation date is 1 April 2017. Therefore, the property’s value on 1 April 2017 forms the basis of the 2019/20 ATED charge.

 

A company acquired a residential property on 6 October 2018. It falls within the scope of the ATED. 

 

The initial valuation date is 6 October 2018. As this is later than the fixed revaluation date of 1 April 2017, the valuation date for the purposes of the 2019/20 charge is 6 October 2018.

 

There are circumstances in which the property may need to be revalued other than on a fixed revaluation date. This may arise, for example, if part of the property is sold or if the property is extended, developed or converted. If the property is used for both residential and non-residential purposes, only the residential part needs to be valued. 

 

Where a property comprises more than one dwelling, such as self-contained flats or maisonettes, each dwelling must be valued separately. However, a property may be valued as a single dwelling where the property comprises more than one dwelling, each of which is owned by a company or someone connected to the company and there is internal access between the dwelling, or where the dwellings consists of adjoining buildings with internal access, such as two terraced houses. Special valuation rules apply where there is more than one interest in the property (e.g. a freehold interest and a leasehold interest). 

 

It should be noted that HMRC can challenge a valuation and may charge interest and penalties if they find the valuation to be wrong. 

 

The amount of ATED that is payable is a fixed amount depending on which band the property values falls. The chargeable period runs from 1 April to 31 March. 

 

The chargeable amount for the period from 1 April 2019 to 31 March 2020 is set out in the table below.

 

More than £500,000 up to £1 million £3,650

More than £1 million up to £2 million £7,400

More than £2 million up to £5 million £24,800

More than £5 million up to £10 million £57,900

More than £10 million up to £20 million £116,100

More than £20 million £232,350

 

The charge is adjusted to reflect periods of the year for which the property was not owned, or for which relief was available.

 

Where the valuation of the property falls within 10% of a banding threshold, it is possible to ask HMRC for a ‘pre-return banding check’ (PRBC) to provide confirmation of the band into which the property falls and thus the tax payable. This can be done by completing the PRBC form available on the Gov.uk website: www.gov.uk/government/publications/sdlt-pre-return-banding-check-prbc.

 

A Ltd owns a residential property in London valued at £3 million. The property provides a London residence for the director of A Ltd. 

 

The charge to ATED applies and ATED of £24,800 is payable for 2019/20.

 

B Ltd is a property rental business run on a commercial basis. It owns a dwelling valued at £800,000. The property is empty for three months in 2019/20 and let out on a commercial basis for nine months. 

 

Relief is available for the nine months for which the property is generating rental income. The ATED charge for 2019/20 is therefore £912.50 (i.e. 3/12 x £3,650).

 

An ATED return must be filed by 30 April in the chargeable period to which it relates where the property was held at the start of the chargeable period. 

 

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