A Complete Guide to Annual Tax on Enveloped Dwellings (ATED)

ATED (Annual Tax on Enveloped Dwellings) is an annual tax payable by a company that owns UK residential property valued at more than £500,000.

This limit is applicable per property;

For example, if the company owns more than one property whose total value is more than £500,000, but the value of the individual property is less than the limit, the tax will not be applicable.

Most of the residential property (dwellings, in other words) are owned by individuals directly.

However, it is collectively owned by a company as an investment vehicle in other cases.

This ownership of residential property within a corporate is ‘enveloped’ due to its nature within a corporate wrapper. Therefore, ATED will be applicable in those instances. 

What do Dwellings Mean?

Dwellings are property used for residence, including gardens, grounds, and any building within it. However, it excludes:  

• Hotels
• Guesthouse
• Boarding School Accommodation
• Hospitals
• Student Halls of Residence
• Military Accommodation
• Care Homes
• Prisons

When to File the ATED Return?

If the company is within the scope of ATED on 1 April, it is required to submit the annual ATED return.

The ATED return is prepared to 31 March annually irrespective of the company’s year-end, and unlike other tax returns, ATED is forward-looking.

E.g., The return for 31 March 2025 will have to be submitted to HMRC by 30 April 2024. 

You usually need to submit the return for:

What are the ATED Annual Charges?

Chargeable amounts for 1 April 2024 to 31 March 2025.

Are There any ATED Reliefs?

There are number of ATED reliefs which may eliminate or reduce the amount payable for ATED.

Generally, the relief can be claimed if the property under the question is:

• Let to a third party on a commercial basis and is not, at any time, occupied (or available for occupation) by anyone connected with the owner.
• Open to the public for at least 28 days a year
• Being developed for resale by a property developer.
• Owned by a property trader as the stock of the business for the sole purpose of resale
• Repossessed by a financial institution as a result of its business of lending money.
• Acquired under a regulated home reversion plan.
• Being used by a trading business to provide living accommodation to certain qualifying employees.
• A farmhouse occupied by a farm worker or a former long-serving farm worker.
• Owned by a registered provider of social housing or a qualifying housing co-operative.

Determining the ATED relief can become complicated and so we advise to seek professional advice to determine the availability of ATED relief.

Are There any Fines and Penalties for Late Filing or Incorrect Filing?

Yes, HMRC will charge fines and penalties in following situations:

• When you do not file your return on time.
• When you do not pay tax on time.
• When you submit an inaccurate return.

Penalty chargeable can be high under ATED. Even if the company claims relief under ATED and no tax is due, a return must be filed. If the return is late in this case, the penalty will be £1,600 per annum can be charged.

A fixed penalty of £100 is imposed immediately after the return date. Penalties under other situations where tax is chargeable are:

When the return or document has not been filed, tax liability will be estimated and charged at 6 months, and 12 months will be 5% of the estimated liability or £300 if this is higher.

If a return or document has been filed, the 6 months and 12-month penalties will automatically be re-calculated if the liability to tax in return is different from the HMRC estimate.

When HMRC has already charged the second further penalty, HMRC will increase the percentage rate if, by failing to file the return or document within 12 months, you:

• Withheld information.
• Knew that the information would help us to establish your correct liability to tax.

During HMRC check, it will establish whether you’ve withheld information and, if so, the reason why?

Can we Amend the ATED Return?

ATED return needs to be amended if

• You have disposed of the property.
• Error in the information sent earlier.
• Claiming a relief.

The amended return must be submitted within 12 months of the end of the relevant period. If you submitted your original return after 1 January following the end of the relevant chargeable period, you would need to make any changes within 3 months of the date you submitted your original return.

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