Many people are choosing to own residential rental properties within a company structure (known as an enveloped dwelling). This form of ownership for residential property landlords has become increasingly popular because of changes to the way tax relief on mortgage interest is now calculated for individual owners. As a result, it can be more tax efficient to hold a property within a company if a portfolio is highly geared, although it does mean additional record keeping.
One additional responsibility for company residential property owners is the requirement to file an ATED (Annual Tax on Enveloped Dwelling) return each year for company properties that are valued above a certain threshold. This requirement is particularly common in London and the south east where property values are higher and potentially, additional tax may also be due. Regardless of whether tax is payable, an ATED return is required for such properties.
Note that, although the normal annual deadline for filing an ATED return is 30 April, it may be necessary to file an in-year return, for example if a property is purchased midway during the reporting period. This article provides a useful update on ATED; when tax it is payable and what action company property owners need to take. Note the deadlines for filing of ATED returns and associated tax payments have not been relaxed due to the Covid-19 crisis as is the case with some other taxes e.g. VAT.
What is ATED?
ATED is an annual tax payable on UK residential property (a dwelling) that is valued at more than £500,000*. It applies where a UK property is owned by a company, a partnership where any of the partners is a company, or a collective investment scheme – for example a unit trust or an open-ended investment vehicle.
*The valuation of £500,000 is based on the property’s value on 1 April 2017. For the purposes of ATED reporting, property valuations are taken every 5 years, with the last valuation being used until the next valuation date occurs. The next valuation date will be 1 April 2022.
Returns must be submitted by 30 April 2020 to declare properties held for the period ending 5 April 2021.
According to HMRC, a property is classed as a dwelling if all or part of it is used, or could be used, as a residence, e.g. a house or flat. This includes gardens, grounds and buildings within a property. In some cases, where a property has mixed usage, this may be reflected in the valuation. High value properties that are likely to be owned by a company but are excluded from ATED reporting include hotels/guest houses, boarding school, student halls of residence, hospitals and military accommodation or care homes.
Additional ATED Reporting requirements
In addition to the annual ATED return which needs to be made within 30 days of the start of the chargeable period (i.e. by 30 April) there are two instances where a return is required ‘in-year’.
The first instance is where a residential property is newly constructed, or adapted from another property and either of these ‘trigger dates’ occur:
- The property comes into existence for Council Tax purposes; or
- The property is occupied
There is a requirement to file an ATED return within 90 days of the trigger date.
The second instance is where there is a change in the chargeable amount (i.e. the liability due) either because the property value or the amount of relief available has changed; in this instance a return is required within 30 days of the event which results in the change.
Key to the ATED reporting regime is being clear on the value of the property in relation to the reporting and chargeable limits. Whilst ‘official’ valuation dates only take place every five years, there are instances where expenditure within the five-year period could cause the property value to change and change the reporting status of that property for ATED purposes. If you are unsure if this applies it important to take advice to ensure the property isn’t inadvertently omitted from a return, even where there is no tax at stake because full reliefs are being claimed.
ATED Reliefs and Exemptions
There are a number of reliefs available that can eliminate or reduce the ATED charge, but these are not automatically given. An ATED return must be filed to claim the appropriate relief; it is not automatic.
The reliefs include the following:
- Where the company carries on a genuine property business, properties are let to third parties and are not let to anyone connected with the company owner(s);
- Where property is acquired as part of a property development for the purposes of development and onward sale;
- A property is open to the public for at least 28 days a year;
- A property is part of a property trading business;
- Property is acquired for use by certain employees who are required to live there for the purposes of their job;
- A farmhouse is occupied by a qualifying farm worker;
- Social housing property.
Calculating ATED
If property is not eligible for a relief or exemption, the annual tax is calculated according to the property’s value, therefore an appropriately dated valuation is needed, based on the dates above, and using the banding below.
It may be that when the next valuation date of 1 April 2022 comes around, some property values will have decreased, taking them out of the reporting requirements for ATED. This could apply because of the predicted downturn in the economy following the coronavirus pandemic, or for example for flats with cladding issues.
As above, where a company purchases a residential property during the course of the year ‘in year’ reporting may be required and in this case, any tax due is calculated on a pro rata basis.
ATED charges for period 1 April 2020 to 31 March 2021
| Property value | Annual charge |
| More than £500,000 up to £1 million | £3,700 |
| More than £1 million up to £2 million | £7,500 |
| More than £2 million up to £5 million | £25,200 |
| More than £5 million up to £10 million | £58,850 |
| More than £10 million up to £20 million | £118,050 |
| More than £20 million | £236,250 |
Chargeable amounts for 1 April 2019 to 31 March 2020
| Property value | Annual charge |
| 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 |
How and when to submit an ATED return
ATED returns can be submitted online and payments can also be made online, if relevant, using the ATED online service to submit your return. Note that interest and a penalty may be payable if you do not file your return or if it is inaccurate. If you own more than one property and have tax to pay, you will need to complete a separate ATED return for each property.
ATED returns are normally submitted by 30 April if the property is within the scope of ATED on 1 April, or within 30 days of acquisition if the property comes within the scope of ATED after 1 April and an in-year return applies.
If you are concerned about whether you need to file an ATED return, please contact us by emailing partners@rjp.co.uk