Annual Residential Property Tax Update
21 / 05 / 2021
In this article for Globally Speaking, we take a look at recent trends regarding the UK’s annual property company tax, ATED.
What is ATED?
ATED, or to give it its full name, the Annual Tax on Enveloped Dwellings, is a tax which is charged every year in relation to UK residential properties owned by companies and certain other structures. ATED is charged on a daily basis which means a company could be liable to pay ATED for certain periods of the year but not others.
The total tax payable for the current ATED year (which runs from 1 April) is as follows:
|Property value||Tax for this year|
|Over £500,000 to £1 million||£3,700|
|Over £1 million to £2 million||£7,500|
|Over £2 million to £5 million||£25,300|
|Over £5 million to £10 million||£59,100|
|Over £10 million to £20 million||£118,600|
|Over £20 million||£237,400|
One trend since the introduction of this tax in 2013 has been for clients to switch from company ownership to owning properties in their own name, known as “de-enveloping”. This pattern is reflected in the latest data published by HMRC, which shows that the level of ATED paid to HMRC has fallen by 28% since 2015.
However, there are certain one-off tax costs when de-enveloping, which have discouraged some from de-enveloping their properties, notably stamp duty land tax and/or capital gains tax. This explains why ATED receipts still remain relatively high, particularly from properties worth more than £20m (the highest ATED band) despite the compelling tax reasons for owners to decide to de-envelope.
Another trend is for clients to let out properties as part of a rental business, which means that ATED is not payable. A point to be aware of is that renting to a shareholder or a family member is not sufficient to gain relief from ATED. Relief can be lost, with ATED becoming chargeable, not only for the period in which a shareholder or family member rents, but also for some previous and later tax years. Even if a property is let out meaning that no ATED is charged, a tax return must still be submitted by 30 April.
A valuation of the property must be taken in the first year ATED applies and every 5 years. For companies subject to ATED since it was introduced in 2013, the current valuation for ATED purposes is by reference to the value of the property on 1 April 2017. We have experienced that HMRC are willing to challenge valuations, so these should be provided by a professional valuer and kept up to date.
Various tax changes in recent years often mean that owning a residential property in the UK as a home for one’s family is best done without a company and in one’s personal name. Each clients own circumstances do come into play however.
If you own a company which holds residential property in the UK, and would like to discuss ATED or any other tax, please feel free to contact your usual advisor or Matthew Braithwaite and Andrew McIntyre using the details below.