If you’re due to submit an Annual Tax on Enveloped Dwellings (ATED) return, then now is the time to speak to your trusted business adviser at Johnston Carmichael. ATED is a forward-looking tax and you may need to submit an annual return, even if there is no tax to pay.

2023/24 ATED returns are due to HMRC by 30 April 2023 and in line with HMRC’s five-year rebasing policy, this is the first period to use a 1 April 2022 valuation date. Previous ATED returns were based on 1 April 2017 valuations. Therefore, residential properties previously outside the regime, which would now be valued in excess of £500,000, will need to take action.

What is ATED?​

ATED is an annual tax payable mainly by companies (both UK and non-UK incorporated) that own UK residential property valued at more than £500,000.  The date of the valuation is important and I will come onto that a little later on.

The ATED regime also applies to such properties owned by a partnership with a corporate member(s), and collective investment scheme, such as a unit trust or open-ended investment company.

A property falls within the ATED regime if it is a dwelling and all, or part of it, is used or could be used as a residence and includes any land that is occupied or enjoyed as part of the dwelling (e.g. a garden).

Non-residential properties are outside the scope of ATED. There are also other properties that are not classed as dwellings for the purposes of ATED; hotels, guest houses, boarding school accommodation, hospitals, student halls of residence, military accommodation, care homes and prisons.

ATED charge and penalties

The chargeable amounts for 1 April 2023 to 31 March 2024 are detailed below:

Penalties will be levied by HMRC for non-compliance.

Exemptions and reliefs

Reliefs are available if specific facts are present, but an ATED return is required to be completed and the relief claimed - it is not automatic. Relief may be available for:

• Property Rental businesses;
• Properties opened to the public;
• Property developers and traders;
• Financial institutions acquiring properties in the course of lending;
• The occupation of employees or partners;
• Farmhouses; and
• Providers of social housing.

Special rules also apply from 1 April 2022 where the dwelling is provided as part of the Homes for Ukraine sponsorship scheme.

There are also exemptions for residential property owned by a charity and held for charitable purposes, properties held by public bodies and bodies established for national purposes, and properties conditionally exempt from inheritance tax meaning no ATED return is required.

ATED revaluation date – Act now!

The ATED legislation statutorily requires the rebasing of the relevant valuation date every five years. This year is the first where the ATED charge will be by reference to a 1 April 2022 valuation and will apply to all ATED returns up to and including 2027/28.

The upcoming 2023/24 ATED returns, covering the period 1 April 2023 to 31 March 2024, will now therefore be based on a 1 April 2022 valuation date (or acquisition/completion date if later). 

Previous ATED returns were based on a 1 April 2017 valuation date, therefore properties previously below the £500,000 threshold should consider if a revaluation of their enveloped dwellings is now required. 

Fluctuations in the property market over the last five years may mean that properties previously out with the ATED regime may now been brought into charge. Similarly, an increase in valuation in the last five years could result in a property moving into a higher ATED banding, which would in turn mean that a higher ATED charge would be payable (assuming no relief claim is being made).

Whilst the valuation is not explicitly required, we would recommend suitably qualified assessors are used, particularly where a property may be near an ATED boundary. A formal third-party valuation will provide robust support to the ATED filing position taken, and offer greater comfort should HMRC challenge.

Nudge letters

In a separate but related matter, it should be noted that HMRC has commenced a campaign to tackle non-tax compliance connected with offshore corporates owning UK property. This has involved HMRC issuing “nudge letters” to many non-resident companies stating that information in HMRC’s possession indicates that previous ATED bandings used may be incorrect. 

This could be as a result of information filed with Companies House in regards to the Resister of Overseas Entities, where certain information had to be submitted to HMRC by 31 January 2023 where UK properties are owned by overseas companies.  If you have received such a letter, then it is recommended you seek specialist tax advice immediately. 

Get in touch

If you would like to discuss whether you have an ATED filing requirement then please get in touch with your usual Johnston Carmichael adviser or Laura Ritchie.