Tax Insight: Annual Tax on Enveloped Dwellings

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Make sure you’re home and dry when it comes to residential property tax. 

Any company which owns residential properties could be affected by what could be considered as a form of mansion tax – also known as UK Annual Tax on Enveloped Dwellings (ATED). This annual charge came into effect in 2013 and subsequent changes in legislation have meant it applies to many more properties and their owners. It’s vital you know what’s happening and what your liabilities are or will be. 

Since 1 April 2013, if your company owns residential property that’s worth £2 million or more – or a share of such property – you may already be liable to annual charges. Subsequent changes mean the charges now affect properties from £500,000 in value. PKF Littlejohn can help you understand whether you are affected, identify your liabilities – and make sure you stay compliant

Which companies – and properties – are affected?

The charge applies to UK and non-UK resident companies, as well as collective investment schemes and some partnerships. In all cases, it’s the value of the property that makes it liable to ATED. So if your company owns a property of taxable value, even if you own it jointly with someone else, it still counts. It’s the overall value, rather than the company’s interest, which is relevant. 

What’s the charge?

The charge for each property is based on the value of the property, on a rising scale currently starting at £500,000. 

Property ValueAnnual Chargeable
Amount 2020/21
Annual Chargeable
Amount 2021/22
More than £500,000, not more than £1 million£3,700£3,700 
More than £1 million, not more than £2 million£7,500£7,500
More than £2 million, not more than £5 million£25,200£25,300
More than £5 million, not more than £10 million£58,850£59,100
More than £10 million, not more than £20 million£118,050£118,600
More than £20 million£236,250£237,400
Changes in the threshold

Prior to 2015/16, the lowest threshold was £2 million. New bands were then introduced, reducing the minimum chargeable value to more than £1 million (from April 2015) and more than £500,000 (from April 2016).

Are all residential properties included?

ATED applies to residential properties that are physically located in the UK, including mixed use properties, gardens, grounds and buildings within them.

However, some types of property are not affected. These include hotels, guest houses, boarding school accommodation, hospitals, student halls of residence, military accommodation, care homes and prisons.

Reliefs can also be claimed for:
  • property rental businesses;
  • property developers;
  • property traders;
  • financial institutions acquiring dwellings in the course of lending;
  • dwellings open to the public;
  • occupation by certain employees or partners of a qualifying trade or a qualifying property rental business;
  • farmhouses; and
  • social housing.
  • From 1 April 2021, housing co-operatives will also be exempt.

Returns and payment

In most instances any claim, return and payment must be submitted by 30 April annually. Other specific dates can also apply depending on your exact circumstances (including a 30 day deadline). You should therefore ensure that your exact circumstances are discussed.

who decides the value of the property?

You are responsible for assessing the value of the property. You can do this with the assistance of a professional valuer if you prefer; however HMRC has the right to challenge a value and to enforce additional tax, interest and penalties if this value is found to be wrong.

A valuation will be required on 1 April 2017 for 2018/2019 and subsequent years and at 5 years intervals thereafter. If the property was not owned then, it will be calculated when it was bought or acquired. The previous valuation date for properties was on 1 April 2012, which applied for ATED returns to 2017/2018.

HMRC can confirm your view of the appropriate banding of the property if you send your valuation for a Pre-Return Banding Check. This is only available if you reasonably believe your property value falls within a 10% margin of being included in a different band.

Other changes to Property Taxes

If your company owns residential property, you also need to be aware of some other recent changes that may affect your tax liability.

Since 6 April 2019 sales of property are liable to Corporation Tax. If the company is not registered for Corporation Tax this is required to be done within 3 months of the chargeable date and any tax due, in most cases, will be required to be paid within 3 months and 14 days of the date of disposal.

Higher UK Stamp Duty Land Tax rates apply to purchases of residential property by companies and some trusts. From April 2017,  Inheritance Tax will be due on the value of UK residential property held by foreign registered companies or excluded property trusts.

Our property tax experts will be happy to explain these changes in greater detail and advise how they may affect you.

Our expert team can help you understand everything you need to know about UK property tax – including how to make sure you are compliant.

To find out more, please contact us.