What is Annual Tax Enveloped Dwelling (ATED)?

Annual Tax Enveloped Dwellings (ATED) 

ATED is an annual tax payable, mainly by companies (both UK and non-UK incorporated) that own UK residential property valued at more than £500,000 on 1 April 2022 (or acquisition/completion date if later).

The ATED regime also applies to such properties owned by:

• A partnership with a corporate member(s)
• A collective investment scheme, such as a unit trust or open-ended investment company.

A property falls within the ATED regime if it is a dwelling and all, or part of it, is used, or could be used, as a residence and includes any land that is occupied or enjoyed as part of the dwelling (e.g., a garden).

Non-residential properties are outside the scope of ATED. There are also other properties that are not classed as dwellings, such as hotels, guest houses, boarding school accommodation, hospitals, student halls of residence, military accommodation, care homes and prisons.
The charge for the year until 31 March 2023 is based on the value of the property on 1 April 2017 (or on acquisition if later).

Chargeable amounts for 1 April 2022 to 31 March 2023

Exemptions and reliefs

Reliefs are available if specific facts are present, but an ATED return will still need to be completed and then relief claimed on the ATED return. Relief may be available for:

• Property rental businesses
• Properties opened to the public
• Property developers and traders
• Financial institutions acquiring properties in the course of lending
• The occupation of employees or partners
• Farmhouses
• Providers of social housing

There are also exemptions for residential property owned by a charity and held for charitable purposes, properties held by public bodies and bodies established for national purposes, and properties conditionally exempt from inheritance tax.

COVID-19 related queries

What happens if the property's value has now fallen below £500,000?
Whether a property falls within the ATED regime or not is determined by the property's valuation at a specific valuation date. The current valuation date used is 1 April 2022, or acquisition date if later.

The valuation date for the 2022/23 ATED return is 1 April 17, therefore we may see properties which have decreased in value no longer being required to submit ATED returns for 2022/23 onwards. Please note however that HMRC have not yet confirmed the valuation bandings as at 1 April 2022 and there is every risk that the valuation amount could decrease, as has been the case at every review period since ATED was introduced.

Rental relief claims

Portfolio of residential properties used as holiday lets. Due to COVID-19 some bookings have been cancelled and the business has not been able to rent properties during much of 2021/22. In order for the property rental business relief to apply, the following conditions need to be satisfied:

• The business must be a property rental business, and 
• It must be carried out on a commercial basis and with a view to a profit

Where a dwelling is not generating rents, the taxpayer may still be able to claim relief if they are taking steps to rent the property out without undue delay. 

It should be noted that any period of occupation by an individual connected to the company, when the property would otherwise have been let, will likely result in ATED rental relief not being available for such a period of occupation and will also be subject to look back and look forward provisions which could significantly impact the period relief is available for. 

Property developer relief claim

In order for the property development business relief to apply, the following conditions need to be satisfied: 

• The business must be a property development business, 
• Property is held so that it will be developed and resold as part of the property development trade, and
• A property development trade must be undertaken on a commercial basis and with a view to a profit

Property trader relief claim

In order for the property trader business relief to apply, the following conditions need to be satisfied:

• The business must be a property development business, 
• Property is held as stock of the business with the sole purpose of resale in the course of the property development trade, and
• A property development trade must be carried on, on a commercial basis, and with a view to a profit

Dwellings opened to public relief claim

For the 'dwellings opened to the public' relief to apply, legislation states that relief is due on any day if either of two conditions is satisfied:

• Condition 1 - the dwelling is being exploited as a source of income in the course of a qualifying trade in the normal course of which the public are offered the opportunity to make use of, stay in or otherwise enjoy the dwelling as customers of the trade on at least 28 days in any year (per FA 2013 s137(2)), or
• Condition 2 - those steps are being taken for it to be open to the public, for at least 28 days (in that or a future chargeable period), and that it will be so exploited without delay, except as far as delay is justified by commercial considerations or cannot otherwise be avoided (per section FA 2013 s137(3)). 

HMRC have published guidance relating to 'dwellings opened to the public' relief which states that:

• If the dwelling was opened for 28 days before 31 March 2022, relief will be available.
• If steps are being taken to open it to be open to the public but for reasons that cannot be avoided e.g., lockdown, it cannot be opened in the remaining months of the year, then relief still will be due for the period.
• If the COVID-19 current restrictions last all year (i.e., to 31 March 2023), relief will still be due so long as it is opened thereafter without undue delay.

As long as the company is opening the dwelling to the public on any day or is taking active steps to do so without undue delay once the crisis is over, then the COVID-19 situation does not affect eligibility to this relief. 

If you need advice or guidance regarding ATED, please contact Violet Mower, Tax Manager. Alternatively, you can complete our online contact form, email us at enquiries@sopherco.com or call 020 8207 0602.