March 7, 2023 A simple guide to ATED terms and jargon
The deadline for filing for the Annual Tax on Enveloped Dwelling (ATED) is nearing. The ATED return comes around once a year. It is a tax related to property but that only applies in specific situations. Here we explain what it is with a particular focus on some of the jargon used.
What is ATED?
According to the HMRC technical guidance:
The Annual Tax on Enveloped Dwellings (ATED) is a tax charged on ‘non-natural persons’ which hold an interest in one or more UK residential dwelling(s) and where the value of that single dwelling interest is above the relevant threshold.
ATED is an annual tax and is charged in respect of ‘chargeable periods’ running from 1 April to 31 March.
Here we breakdown the jargon in plain English:
- Who or what is a-non-natural person?
- What is meant by an interest?
- What is meant by dwelling?
- What is the relevant threshold?
- What is a chargeable period?
- And more.
What is a non-natural person?
ATED is payable where instead of being owned by an individual the property is owned by a non-natural person (NNP). In most instances this would be a company but it may also be a partnership where there is a corporate partner, a collective investment scheme e.g. a unit trust or an open ended investment vehicle or a trust.
However, there are exemptions for: charities holding property for charitable purposes, public bodies and bodies established for national purposes.
What is a ‘chargeable interest’?
Chargeable interest in ATED scope means interest in a single dwelling. A dwelling can be a building or part of a building and it includes any garden or grounds occupied or enjoyed with the dwelling. Simple examples of a single-dwelling interest are a freehold interest and a leasehold interest. For instance, if a company owns 3 flats in an apartment building/complex, they are treated as having separate single dwelling interests in each of the 3 flats. If either one of the interests exceeds the ATED thresholds individually, an ATED return will be required for that specific dwelling.
What is a dwelling?
A building (or part of a building) is a “dwelling” at any time when it is:
- Used as a dwelling
- Could be used as a dwelling
- Or is in the purpose of being constructed or adapted to be used as a dwelling
Situations where a property would not be considered a dwelling include:
- Student accommodation
- Care homes
- Hospital or hospice.
- A hotel or inn
- Property being redeveloped or held as stock for resale a developer.
- Rental property
What is the ‘relevant threshold’ value?
At the time of writing ATED applies to properties with a market value of £500,000+, and this has been the case since April 2016.
Every 5 years you are required to revalue the property. For filings in 2023/24, 2024/25, 2025/26 and 2026/2027 the valuation is the value at 1 April 2022 or the purchase cost of the property if it was acquired after that date.
How is the value of the property arrived at?
The value of the property is the “market value”. This is the price that those assets might reasonably be expected to fetch on a sale in the open market where there is a willing buyer and willing seller.
What is a chargeable period?
Chargeable periods run from 1 April – 31 March. ATED is payable annually in advance by 30 April for the chargeable period covered by the return. For example, returns for April 2023 – March 2024 ATED must be filed on or after 1 April 2023.
If a property is only owned for part of the chargeable period it will owe a proportion of the charge.
Finally, how is the ATED charge calculated?
The tax is calculated based on a banding approach. The amount owed depends on which band the market value of the property fits in.
|
Property value |
ATED charge (2023-2024) |
| £500k – £1m | £4,150 |
| £1m – £2m | £8,450 |
| £2m – £5m | £28,650 |
| £5m – £10m | £67,050 |
| £10m – £20m | £134,550 |
| > £20m | £269,450 |
(Reliefs may be applicable if the property is used for qualifying purposes e.g. a property rental business; however, an ATED relief return will still need to be filed with HMRC even if no amount is owed.)
How can Elemental help?
Elemental can help you determine if your company is required to pay ATED based on the value of your residential properties and your specific circumstances. For more information on how we can help clients visit our ATED Return Service page.
