Annual Tax on Enveloped Dwellings (ATED): What do you need to consider

Since 2013, Non-Natural Persons (NNPs) such as companies and partnerships with corporate members have been required to submit annual ATED declarations if they hold high value UK residential property. Here is what you need to know if you are investing in a UK residential property via a corporate vehicle.

Contents

• Who is subject to ATED?
• What is a dwelling?
• Who is exempt from ATED?
• What is the chargable period?
• What are the ATED charges?
• ATED reliefs: When the charge can be avoided.
• Residential or commercial for ATED?
• Uninhabitable property.
• ATED when building a new property.
• Where does one property end and another begin?
• Other issues for company ownership of property.

Who is subject to ATED

An ATED return is only relevant if a high-value UK residential property, also referred to as a dwelling, is held within a ‘corporate wrapper’ which is known as enveloped. As such this applies to companies, partnerships with a corporate member and collective investment schemes.

Whilst the threshold for high-value UK residential properties was initially set at £2,000,000, it was subsequently reduced to £1,000,000 from 1 April 2015 and from 1 April 2016 dwellings valued above £500,000 came within the scope of ATED.

What is a dwelling?

It is also worth noting at the outset that the ATED charge is based on the concept of a ‘dwelling’, which is a residential property which part or all of which could be used as a residence. As such, just because a property may not be used for residence, this does not mean it is not a dwelling. For example, if a company owns a flat, where the company uses it as an office, this would still be considered a dwelling for ATED.

A dwelling also includes property that is in the process of being constructed or adapted for domestic use.

Who is exempt from ATED?

If your company holds certain types of residential property, these are not considered dwellings and therefore exempt from even submitting an annual ATED return if these include the following: hotels, care homes, hospitals, boarding schools, military accommodation and guest houses.

Furthermore, charitable companies using the property for charitable purposes, public bodies and bodies established for national purposes are also exempt from ATED.

What is the chargeable period?

A chargeable ATED period commences from 1 April until the following 31 March and such returns are usually submitted a year in advance. For instance, the ATED returns for 2025/26 chargeable period ought to have been submitted to HMRC by 30 April 2025.

What are the ATED charges?

To calculate your ATED charge, you’ll need to value your property. The valuation date is a fixed date that is updated every five years. Currently, ATED returns up until and including 2027/28 year are based on a property value as at 1 April 2022. If a property is acquired after 1 April 2022, the taxable value is its Market Value as at the date of acquisition.

Unless the property qualifies for relief, each ATED return reports the value of the property within a certain valuation band, based on which the annual ATED charge is applied. The annual ATED charges for the 2025-26 chargeable period can be found below.

ATED charges increase annually in line with the previous September’s Consumer Price Index.

ATED reliefs: When the charge can be avoided

The aim of the ATED regime, introduced by George Osbourne, was to dissuade properties being held in companies purely for investment purposes. As such there are a number of reliefs available from the ATED charge, though a return must still be submitted in these cases to claim the relief.

Reliefs are available in the following circumstances: using the dwelling in a property-rental business, in a property-development business or for occupation by employees or partners.

It should be noted that there are detailed rules that may preclude a company from claiming relief retrospectively and prospectively. For instance, the majority of reliefs are withdrawn if a ’non-qualifying individual’ resides in the property.

A ‘non-qualifying individual’ is generally an individual and his relatives who are connected with the settlor, the trust or the company who ultimately benefit from the UK residential property.

For instance: A Ltd owns a high valued UK residential property. A Ltd is wholly owned by a trust, which was settled by Mr A. As such, Mr A and his spouse and relatives will be a non-qualifying individuals if they were permitted to occupy the property. The ATED relief will not be claimable and if relief has previously been claimed then the look forward and look back rules will be triggered leading, usually, to relief being withdrawn.

Residential or commercial for ATED?

Since ATED only applies to a dwelling which is capable of being used as a residence, it is important to first ascertain whether a property holds either a residential or a commercial status.

One of the exempt types of property from the ATED charge is a hotel, and this may extend to bed and breakfasts (‘B&Bs’). The basis of this is that B&Bs could be argued to be commercial rather than residential provided they have bathing facilities, telephone lines installed in each room and are available all year round.

Nevertheless, each case must be assessed based on its merits by taking a holistic view of the factors in addition to above, such as whether business rates are charged, whether the property has control of its own utilities, how the property is listed on the title deed, to name a few.

Uninhabitable property

The ATED charge is applicable to residential property and it would be logical to assume that a property that is uninhabitable is automatically not within the ATED charge. However, whilst this is true, the cases where this applies are limited. The damage to the building must be accidental or otherwise caused by events out of control of the owner in order for the property not to be within the ATED charge. Furthermore, the result of the damage must mean that the dwelling is unsuitable for habitation for at least 90 consecutive days.

ATED when building a new property

It is also important to ascertain when a property becomes suitable for habitation. For instance, a popular question amongst the property developers is when a newly developed property falls within the scope of ATED? The reference point is usually the earlier of:

• The day on which the property becomes chargeable to Council Tax.
• The day on which the property is first occupied.

If a property is converted, say from a standard four bed house into two separate flats, the relevant date is when the old property ceases to exist, and the conversion is completed.

Where does one property end and another begin?

A ‘single-dwelling interest’ is a fundamental concept in ATED. For instance, in cases where more than one single dwelling exists, or a property has a mix of both residential and non-residential units, then careful consideration should be made to ascertain whether there is just a single dwelling interest or two separate ones. This is important as the identification of the single-dwelling interest is used to establish the valuation of the property that is within the charge to ATED.

In some cases, a company may hold several properties all within a close vicinity and the surrounding land and estates. This poses the question of whether the company has one or multiple dwellings. Usually, if the property and grounds can be enjoyed and used by the residents of the property, the value of land and estate should be included in the ATED valuation. However, each case needs to be reviewed in isolation.

Furthermore, in certain circumstances two, otherwise separate, dwellings could be treated as a single-dwelling for ATED purposes, such as properties that are ‘linked’ (i.e. there is common access between them by perhaps a door). As a result, these may also form a single-dwelling interest for ATED provided certain criteria is met.

Other issues for company ownership of property

Whilst outside the scope of the article, potential corporate investors should also be aware of the following:

• Non-resident purchasers, including corporate vehicles, are subject to a Stamp Duty Land Tax surcharge of 2% above the residential rates on the acquisition of residential property.
• Any profits made by companies will be chargeable to UK Corporation Tax at rates between 19% and 25%.
• Non-resident companies need to submit annual declarations to the Register of Overseas Entities at Companies House declaring their beneficial ownership structure much like UK resident companies.

In summary, the ATED position for corporate vehicles owning UK residential property can be complex and advice should be sought to ensure the correct tax treatment and reporting. If you require assistance with ATED, please get in touch with our team today -we’re only an email away.