What is the annual tax on enveloped dwellings?
The annual tax on enveloped dwellings (ATED) was introduced as part of a package of measures aimed at making it less attractive to hold high-value UK residential property indirectly, eg through a company, in order to avoid or minimise taxes such as stamp duty land tax (SDLT) on a subsequent disposal of the property.
The other measures included in the anti-avoidance package relating to high-value UK residential property include:
- •a higher 15% rate of SDLT on the acquisition of high-value UK residential property for non-natural persons (NNPs) (for further details, see Practice Note: Rates of SDLT), and
- •a capital gains tax (CGT) charge on sales of high-value UK residential property by NNPs (for further details, see Practice Note: CGT on ATED-related gains)
When does ATED apply?
The provisions enacting ATED are set out in Part 3 of the Finance Act 2013 (FA 2013). ATED applies to high-value UK residential property owned on, or acquired after 1 April 2013, by non-natural persons (NNPs). ATED is an annual tax and is charged in respect of chargeable periods running from 1 April to 31 March (the ‘chargeable period’) starting with the period 1 April 2013 to 31 March 2014. ATED applies where there is a chargeable interest which:
- •is a single-dwelling interest situated in the UK
- •has a taxable value of £500,000 or above (from 1 April 2016), or at acquisition if later, and
- •is owned, completely or partly, by a non-natural person
For further details, see Practice Note: ATED—the basics.
Who is liable to pay ATED?
ATED is payable where the relevant UK property interest is held by a list of specific NNPs. The chargeable person is liable to submit ATED returns and for payment of ATED within the required time limits. The chargeable person for each type of NNP within the scope of ATED is as set out in the table below:
|Non-natural person within charge to ATED||Chargeable person for ATED purposes|
|Partnership||The responsible partners (ie all the persons who are members of the partnership)|
|Unit trust||The trustees of the unit trust|
|Open-ended investment company (OEIC)||The body corporate referred to in section 236(2) of the Financial Services and Markets Act 2000|
|EEA UCITS (not a unit trust or OEIC)||The management company of the UCITS|
|Collective investment scheme not falling in the categories above||The person who has day-to-day control over the management of the property subject to the scheme|
What are the rates of ATED?
The amount of ATED chargeable is based on the taxable value (ie the market value) of the property at certain specific valuation dates. The amount of tax charged in relation to a single dwelling interest for a chargeable period is based on a banding system as set out in the table below:
|Taxable value of the interest on the relevant day||Annual chargeable amount (1 April 2013–31 March 2014)||Annual chargeable amount (1 April 2014–31 March 2015)||Annual chargeable amount (from 1 April 2015)|
|More than £2m but not more than £5m||£15,000||£15,400||£23,350|
|More than £5m but not more than £10m||£35,000||£35,900||£54,450|
|More than £10m but not more than £20m||£70,000||£71,850||£109,050|
|More than £20m||£140,000||£143,750||£218,200|
The applicable rates from 1 April 2015 were announced in the Autumn Statement 2014 on 3 December 2014 when it was confirmed the government would increase the annual rates of ATED by 50% above the rate of inflation for residential properties worth over £2m as set out in the above table.
If the property interest is held on the first day of the chargeable period (ie 1 April), the full amount of the annual chargeable amount as set out in the table above is due. If the property interest is acquired during a chargeable period, a proportion of the annual chargeable amount is payable.
When ATED was initially introduced, the taxable value threshold was set at £2m or above. It was announced in Budget 2014 that the threshold for the application of ATED would be reduced to £1m or above with effect from 1 April 2015 and further reduced to £500,000 or above with effect from 1 April 2016 with the applicable annual chargeable amounts set out in the following table:
|Value of the property interest||Annual chargeable amount|
|More than £500,000 but not more than £1m (with effect from 1 April 2016)||£3,500|
|More than £1m but not more than £2m (with effect from 1 April 2015)||£7,000|
For further details on the calculation of ATED and adjustments to the chargeable amount, see Practice Note: Calculation of ATED.
Reliefs and exemptions
Various reliefs, exemptions and adjustments to the chargeable amount are available in certain circumstances. Reliefs from ATED include relief in relation to:
- •property rental businesses
- •property developers
- •property traders, and
- •financial institutions acquiring dwellings in the course of lending
A further relief, called interim relief, is available to assist with the cash flow position of taxpayers. Interim relief is a mechanism for claiming reliefs from ATED rather than a relief from ATED in its own right.
Bodies exempt from ATED include:
- •charitable companies, and
- •public bodies and bodies established for national purposes
For further details, see Practice Note: ATED—reliefs and exemptions.
How is ATED collected?
ATED is a self-assessed tax. Tax payers liable to pay ATED must submit ATED returns and provide payment to HMRC within specified deadlines.
For details on completing an ATED return, see Practice Note: ATED—administration and payment of tax — Completing an ATED return and for details on the payment of ATED, see Practice Note: Payment of ATED.
CGT on ATED related gains
As mentioned above, FA 2013 introduced an extension to the capital gains tax (CGT) regime by introducing a CGT charge on disposals on or after 6 April 2013 of property interests falling within the scope of ATED by both resident and non-resident non-natural persons.
The ATED CGT charge marked a departure from the long standing position that companies are subject only to corporation tax on chargeable gains and are not subject to CGT. The ATED CGT charge applies to any ATED-related gains made on ‘relevant high-value disposals’ by NNPs of UK residential property. NNPs for these purposes have the same meaning as under the ATED rules. This means that the ATED CGT charge applies to both UK resident and non-UK resident companies and other NNPs.
A relevant high value disposal exists where:
- •there is the disposal of the whole or part of a chargeable interest
- •the disposed chargeable interest has been or formed part of a single-dwelling interest during the ‘relevant ownership period’
- •the owner of the chargeable interest has been within the charge to ATED during the relevant ownership period, and
- •the consideration for the disposal exceeds the ‘threshold amount’
The ATED CGT charge only applies where the gain is ATED related. This means that the chargeable interest must be within the scope of a charge to ATED for the ATED CGT provisions to have effect. Therefore, if one of the reliefs from ATED is applicable to relieve a charge to ATED in respect of a single-dwelling interest, there will not be a charge to ATED CGT in relation to a disposal of such interest. Provisions apply to reduce a charge to ATED CGT where the single-dwelling interest has been both within and outside the scope of a charge to ATED during the period of ownership.
For further details,