Annual Tax on Enveloped Dwellings (ATED) returns due at the end of April

A brief reminder that returns of the Annual Tax on Enveloped Dwellings (“ATED”) are due in at the end of this month. 

If you’re wondering what an “enveloped dwelling” means, perhaps with a mental image of a small house and some very large stationery, worry not.  This blog probably won’t affect you.  For those of you involved with residential property owned by a non-natural person, usually a company, read on!

The ATED was instigated primarily to stop the perceived abuse of the Stamp Duty Land Tax (“SDLT”) rules by people who used a company to hold their UK property investments.  If you bought an expensive residential property (ATED does not apply to commercial property) you were liable for SDLT at rates of up to 7%.  However, if instead you set up a company which bought the property, you could eventually sell the property by selling the company rather than by selling the property itself.  Stamp Duty on shares is only 0.5% so there is a potential saving to a purchaser of the property of up to 6.5% of its value.  No doubt this would be split between buyer and seller by mutual agreement, but HMRC would certainly be left out of pocket.

To compensate for this, there is now an annual tax charge based on which of the following bands the value of the property falls:

You will see from the above that this tax has risen very sharply indeed and is clearly intended as a disincentive towards holding residential property in a corporate structure.  There are, however, many exemptions from the ATED if the property is used for the purposes of a business.  This usually means commercial letting or some form of development, but the exemptions must be claimed in the ATED return itself.  No return; no relief.  There are also penalties for late filing, so don’t think this is something that can be sorted out later simply because there is no tax to pay.

This brief note only gives an overview of a very substantial tax and there is no substitute for getting proper advice.  If you need help, please do ask, because doing nothing is not an option and time is running short!