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 |
De-enveloping
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.
Renting
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.
Valuations
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.
Comment
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.
Originally published 21 / 05 / 2021
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.