I’m going to start with a confession; I have favourite taxes. And, as a tax adviser, that’s not an easy thing for me to admit. It’s a bit like a parent owning up to having a favourite child. I feel like I should probably treat all taxes equally, but then April rolls around, it’s ATED month and I realise that I really dislike ATED as a tax.

That’s not a political statement, I simply think it’s a badly thought-out tax with excessive penalties that can be payable even when no tax is due…almost like it was worked out on the back of an envelope.

I often present about tax matters to property investors and developers, and through doing that, I’ve discovered that ATED is the least known and understood.

Wondering what ATED is? It stands for the catchily titled “Annual Tax on Enveloped Dwellings”.

ATED in brief (or the back of an envelope if you prefer)

If you own a residential property worth £500k or more in a limited company, then ATED needs to be on your radar. It was brought in a few years ago because HMRC was concerned that it was missing out on Stamp Duty Land Tax (SDLT) when certain residential properties were sold. This is because the properties were held in limited companies (the so-called “envelope” in ATED). If the company was sold, then no UK SDLT was being paid, because the property itself didn’t change ownership.

ATED was introduced and, as the name suggests, it’s an annual tax payable by certain entities (mainly companies) holding UK residential property. Valuation dates are set and at the moment, it’s applicable to properties worth £500k on 1 April 2017 or when acquired if later, but for the 2023/24 year, it’s going to look at the 1 April 2022 valuation. Depending on the value of the property, the ATED can be from £3,800 and up to £244,750 per annum, and it’s payable unless an exemption applies. Although April is ATED month, in year returns are also due if you acquire a property during the year.

ATED Exemptions

The main exemptions are for properties let to third parties, and for properties under development and being resold. However, the really important point to note is that the exemptions generally have to be claimed, and if you don’t complete the return and claim the exemption, some hefty penalties are due as I alluded to at the start.

ATED SDLT

In addition to the “normal” ATED, there is also a particularly nasty ATED SDLT which can apply when a company buys a residential property that will fall within ATED. This is a flat rate of 15% SDLT.

Avoid ATED penalties

As I mentioned earlier, April is ATED month, and the returns need to be filed by 30 April to avoid penalties. If you have any concerns about whether ATED applies, or you want some help with an ATED matter, please do get in touch – it might be my most hATED tax, but I do understand it and I am always here to help, just send me an email or call me on 0113 297 6789.

Kate Naylor
Kate Naylor
Tax Partner

Kate works with businesses and their owners on tax strategies and mitigation, looking at business and personal tax structures to achieve long term goals.

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