Residential properties owned by companies – ATED – Annual Tax on Enveloped Dwellings

ATED tax on properties owned by businesses

ATED is an annual tax payable mainly by companies that own UK residential property.

Until 1 April 2016, ATED was only applicable to residential properties valued at over £1m. This is where residential properties were held (“enveloped”) by a company or a partnership with a company member or a collective investment scheme.

The valuation threshold for properties subject to ATED is now only £500,000. The valuation date for properties subject to ATED has been updated from 1 April 2012 (or the date of acquisition, if later), to 1 April 2017 (or the date of acquisition, if later).

This has brought a large number of properties, which were previously below the threshold, into the scope of this annual tax.

The ATED is calculated by using a banding system and the annual chargeable amount for 2018/19 has risen to £3,600 for dwellings valued at between £500,001 to £1m.

However, there are a number of reliefs and exemptions that apply.

The main reliefs are for dwellings:

• being redeveloped or held as stock for resale by a property developer.
• held by property rental businesses where the building is let out to a third party on a commercial basis.
• that are open to the public for at least 28 days per year or are used to provide accommodation or other services to the general public on a commercial basis.
• that are farmhouses occupied by working farmers.
• held by trading companies for the use of employees in the trade.
• owned by providers of social housing.
• acquired by financial institutions in the course of lending.
• held by property rental businesses for occupation by employees.
• held by property management companies for occupation by a caretaker.
• held by a regular home reversion plan provider (such as an equity release scheme).

The main exemptions relate to exempt bodies such as charities, public bodies and bodies established for national purposes.

Properties need to be single dwellings to be liable to this charge. Hotels, guest houses, boarding school accommodation, hospitals, student halls of residence, military accommodation, care homes and prisons are not single dwellings.

Capital gains : When a property subject to ATED is sold, a special ATED related capital gains tax will be payable. The amount of CGT payable will depend upon the length of time that the property has been owned and the length of time the property was subject to ATED.

Planning ahead : Although ATED is based on property values as at 1 April 2017 (or the later acquisition date) a new valuation will be required on 1 April 2022 and that valuation will form the basis for the tax calculation in subsequent years.

This is not legal advice; it is intended to provide information of general interest about current legal issues.

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Roderick Campbell

Partner, Head of Commercial Property

Rod joined Hart Brown as a trainee in 1983, qualified in 1985 and became a partner in 1988. Rod has specialised in property law for...

Partner, Head of Commercial Property

Roderick Campbell

Rod joined Hart Brown as a trainee in 1983, qualified in 1985 and became a partner in 1988.

Rod has specialised in property law for over 20 years concentrating on commercial property for the last 7 years. He handles a broad range of commercial transactions for both businesses and individuals. He has developed a particular expertise in dealing with restrictive covenants, options, conditional contracts and overage.

He is a member of the Law Society Property Group, the LawNet Commercial Property Group and Mensa. In order to further enhance his knowledge and skills in 2007 Rod took on the arduous task of studying for, and passing with Distinction, an LL.M Masters Degree in Advanced Commercial Property Law through Northumbria University. He achieved the highest combined score with his first 4 assignments and was awarded top prize by Butterworths/Lexis Nexis.

In 2008 he published a book on “Methods of Securing Development Land Overage”.

Roderick’s clients regularly describe him as “very good to deal with”, “clear, direct, straightforward, efficient and effective.” Another client commented: "Roderick Campbell provided extremely helpful, insightful, and totally professional advice. He was much more useful than other solicitors involved in the transaction."

His most memorable case was an Option Agreement concerning an M25 service area which lasted for some 12 years.