It’s time to organise valuations for the Annual Tax on Enveloped Dwellings Returns
By Chris Campbell, Head of Tax (Tax Practice and Owner Managed Business Taxes)
27 January 2023
Chris Campbell advises on the changes for 2023/24 returns for the Annual Tax on Enveloped Dwellings
What is the Annual Tax on Enveloped Dwellings?
The Annual Tax on Enveloped Dwellings (ATED) is a tax payable on residential property in the UK. ATED is mostly payable by companies but can also be payable by partnerships (if any of the partners is a company) and collective investment schemes such as a unit trust or an open-ended investment vehicle.
ATED has been charged since April 2013, when it applied where the value of residential property owned exceeded £2 million, reducing to £1 million for 2015/16 and to the current threshold of £500,000 from 2016/17 onwards. As such, the scope of ATED has extended over time, particularly where residential properties may have increased in value as the ATED threshold has reduced.
Where an entity is exempt from ATED (including charitable companies using the dwelling for charitable purposes, qualifying public bodies and bodies established for national purposes), there is no need to file an ATED return. More details can be found in HMRC’s ATED technical guidance.
Otherwise, it is necessary to submit a return by 30 April each year the property is in scope of ATED on 1 April. This is the case even where there is no ATED payable due to an ATED relief as the relief itself needs to be claimed. However, where there are no properties owned above £500,000, a nil return is not required.
When properties are acquired during the year, an ATED return must be completed within 30 days of acquisition (different rules apply for newly built property) covering the remainder of the ATED fiscal year and the property will form part of the annual return thereafter.
HMRC will charge penalties for late or inaccurate returns and also charge interest and penalties where tax has not been paid on time.
How much is the ATED payable to HMRC?
The ATED return and any liability payable for 2023/24 is due for payment by 30 April 2023. Subject to any reliefs due, the ATED payable is based on the property value as follows:
Property value | ATED charge |
More than £500,000 up to £1 million | £4,150 |
More than £1 million up to £2 million | £8,450 |
More than £2 million up to £5 million | £28,650 |
More than £5 million up to £10 million | £67,050 |
More than £10 million up to £20 million | £134,550 |
More than £20 million | £269,450 |
The ATED charges for the previous two years and earlier years are on the HMRC website.
What ATED reliefs are available?
It may be possible to claim relief from ATED where the property is let on a commercial basis to a third party, the property is open to the public for 28 days or more per year, the property is in the process of being developed by a property developer for resale, the property is owned by a property trader as stock or the property has been repossessed by a financial institution. Relief from ATED may also be available where the property is a farmhouse used by a farm worker or former long-serving farm worker, the property is used by a trading business for employee accommodation for qualifying employees or the property is owned by a registered provider of social housing.
There are special rules from April 2022 where the property is provided as part of the Homes for Ukraine sponsorship scheme.
The rules on ATED reliefs can be fairly complex, so it is necessary for tax practitioners to ensure that their clients are aware of the relevant conditions so that the correct relief is claimed on the ATED return for their client’s circumstances.
What’s changing for the ATED returns due in April 2023?
The main change for the April 2023 returns is the need to carry out a valuation of the properties that could be affected by ATED. For 2023/24 to 2027/28, the scope of ATED will be based on the value as at 1 April 2022. The valuation of properties acquired after 1 April 2022 will be based on the value on acquisition.
Where the valuation of a property has increased since the previous valuation date of 1 April 2017, this may mean that properties previously lower than £500,000 may be subject to ATED for the first time. Alternatively, properties already in the ATED regime may be subject to a higher banding so will pay ATED at a higher amount each year.
Tax practitioners will need to make sure that their clients carry out a new valuation to ensure that the ATED returns submitted by 30 April 2023 reflect the correct valuations of property. In some cases, it may be possible for HMRC to carry out a pre-return banding check although this will need to be requested in sufficient time for HMRC to respond to the application so the ATED return can be submitted before the 30 April deadline.
It is important to get the valuation correct as ICAS is aware that HMRC will use information at its disposal on property transfers to corroborate what is submitted in ATED returns. Indeed, HMRC has previously sent "nudge letters" where it has not received an ATED return but would have expected one.
Let us know your views
We welcome Members’ input to inform our work on consultations or other tax-related matters – email tax@icas.com to share your insights and feedback. ICAS responds to many tax calls for evidence and consultations, as well as producing tax policy papers and reports. We also regularly attend meetings with HMRC at which service levels, delays and other issues are discussed, and we raise problems being encountered by Members.