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The Annual Tax on Enveloped Dwellings (ATED)

tax accountant

What is ATED tax in UK?

The Annual Tax on Enveloped Dwellings (ATED) is a tax that is levied on properties held within certain types of corporate envelopes (such as a company or a partnership) that are worth more than £500,000. It was introduced in 2013 to help reduce the tax advantage that some individuals had been receiving by holding UK residential property through a corporate envelope. The tax is based on the value of the property and is paid annually. If you own a residential property that is worth more than £500,000 and is held within a corporate envelope, you may be required to pay ATED.

What are ATED tax rates?

The ATED tax rates are based on the value of the property and are as follows:

  • If the property is worth more than £500,000 but less than £1 million, the ATED tax rate is 1% of the value of the property.

  • If the property is worth more than £1 million but less than £2 million, the ATED tax rate is 3% of the value of the property.

  • If the property is worth more than £2 million but less than £5 million, the ATED tax rate is 4% of the value of the property.

  • If the property is worth more than £5 million but less than £10 million, the ATED tax rate is 5% of the value of the property.

  • If the property is worth more than £10 million, the ATED tax rate is 6% of the value of the property.

These rates are applicable for the tax year 2021-2022.

What are ATED exemptions?

There are several exemptions to the ATED tax, which means that you may not have to pay the tax if your property falls into one of these categories. Some of the exemptions include:

  • Properties that are used for charitable purposes

  • Properties that are let to a third party on a commercial basis

  • Properties that are used for business purposes

  • Properties that are used for agriculture or forestry

There are also reliefs available for certain types of properties, such as properties that are used as holiday homes or properties that are held in a trust. In order to qualify for an exemption or relief, you must be able to provide evidence that your property meets the relevant criteria.

Finally, there are also de-minimis exemptions available for properties that are worth less than £500,000. If your property is worth less than this amount, you will not have to pay the ATED tax.

How to report ATED tax?

If you are required to pay ATED tax, you must file an ATED return each year to report the tax. The deadline for filing an ATED return is usually 30 April following the end of the tax year, and the tax must be paid by 31 October following the end of the tax year.

To file an ATED return, you will need to complete the ATED return form, which is available on the government’s website. You will need to provide details about the property, including its value and the dates that it was held within the corporate envelope.

You will also need to provide details about any exemptions or reliefs that you are claiming, and you may need to provide supporting documentation to back up your claims.

If you are unable to file the ATED return by the deadline, you may be able to request an extension by contacting the ATED team at HM Revenue and Customs (HMRC). However, you will still need to pay any tax that is due by the deadline in order to avoid incurring any late payment penalties.

Are there any penalties for failure to file ATED tax?

Yes, there are penalties for failure to file an ATED return on time. If you do not file your ATED return by the deadline, you will receive a late filing penalty. The amount of the penalty will depend on how late the return is filed, and it will be charged in addition to any tax that is due.

If you do not file your ATED return within three months of the deadline, the penalty will be £1,600. If you do not file your return within six months of the deadline, the penalty will be £3,600. If you do not file your return within 12 months of the deadline, the penalty will be £4,600.

In addition to these late filing penalties, you may also be charged interest on any tax that is due but has not been paid by the deadline. If you are unable to pay the tax due, you should contact HMRC to discuss your options and avoid incurring any further penalties.