UK residential Property: annual tax on enveloped dwellings (ATED) implications

Overview

Most residential properties (dwellings) in the UK are owned directly by individuals. But in some cases a dwelling may be owned by a company or a partnership or other collective investment vehicle, whether UK resident or non-resident. In these circumstances the UK dwelling is said to be “enveloped” because the ownership sits within a corporate “wrapper” or “envelope”.

Chargeable Persons

The Annual Tax on Enveloped Dwellings (ATED) is a tax charged on “non-natural persons” (a company, a partnership with a company partner, or a collective investment scheme) which hold an interest in one or more UK residential dwelling(s) known as (a ‘single-dwelling interest’) and where the value of that single dwelling interest is above the relevant threshold.

Trusts are not treated as “non-natural persons” for the purposes of ATED and so are not within the scope of ATED. Therefore, dwellings held directly in a UK or non-UK trust will not automatically be subject to the charge. However, please note that significant changes have been introduced from 6 April 2018 with regards to offshore trusts holding UK property indirectly.

ATED will not apply where an individual alone, or with other individuals, owns a residential property.

Moreover, this tax does apply to a non-UK resident non-natural persons and it's essential for them to consider these costs when evaluating the overall investment in UK residential property.

Chargeable Periods

ATED is an annual tax and is charged in respect of “chargeable periods” running from 1 April to 31 March each year. The first chargeable period was 1 April 2013 to 31 March 2014.

Where a person owns a single-dwelling interest for a shorter period then its chargeable period will be 1 April to the date it no longer owns the interest. Furthermore, where a liability arises in only part of the year then only a proportion of the annual amount payable will need to be paid.

Chargeable Amounts

The amount of tax chargeable is based on the value of the dwelling at 1 April 2012, or, if later, when the dwelling is acquired by a non-natural person or when the dwelling is considered to be completed.

Where the dwelling has been acquired part way through a chargeable period then the liable persons’ first year of charge will be a proportion of the full year charge.

The amount of tax chargeable in respect of a single-dwelling interest for a chargeable period (the ‘annual chargeable amount’) is determined in accordance with the table of charges for that chargeable period. These amounts will differ over time due to the indexation of the annual chargeable amounts.

Tab.1 Chargeable amounts for 1 April 2024 to 31 March 2025 

Tab.2 Chargeable amounts for 1 April 2023 to 31 March 2024 

 A non-natural owner must revalue their property every 5 years from 1 April 2012 in line with ATED legislation. Therefore, the subsequent revaluation dates were 1 April 2017 and 1 April 2022.

Example: If a non-natural person acquired a property:

• on or before 1 April 2022 — use 1 April 2022 as the revaluation date
• after 1 April 2022 — use the date of acquisition as the valuation date

Reliefs available

 There are reliefs available to reduce chargeable amounts to nil. However, a Relief Declaration Return needs to be prepared and submitted online to HMRC by the due date in order to claim the relief.

Penalties and interest

Penalties and interest could be charged if a non-natural person does not file a return or make a payment on time. Penalties could also be charged if an inaccurate return is submitted.

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The information provided in this article is of a purely general nature and is not a substitute for specific advice that may be requested here.

It's crucial to stay informed about changes in tax regulations and seek professional advice to ensure compliance with the latest tax laws. Consulting with a tax advisor can help you navigate the complexities of UK property taxation and optimize your financial position.