What is annual tax on enveloped dwellings (ATED)?
ATED is a tax payable on high value dwellings. It started on 1 April 2013 and is payable each year.
You'll need to complete an ATED Tax Return for your property if all of the following apply:
- it's a dwelling
- it's situated in the UK
- it was valued at more than £1 million on 1 April 2012, or at acquisition if later
- it's owned by a company (unless acting as trustee), a partnership where one of the partners is a company or a unit trust
Hotels, guest houses, boarding school accommodation, hospitals, student halls of residence, military accommodation, care homes and prisons are not dwellings, so don't come under ATED.
There are reliefs that could reduce the tax completely (see below) but you can only claim them if you complete and send in a return.
ATED is payable for enveloped residential properties in the following bands annually from 1st April to the following 31st March:
Rate bands
| Property Value | 2013-14 | 2014-15 | 2015-16 |
| £1,000,001 to £2,000,000 | n/a | n/a | £7,000 |
| £2,000,001 to £5,000,000 | £15,000 | £15,400 | £23,350 |
| £5,000,001 to £10,000,000 | £35,000 | £35,900 | £54,450 |
| £10,000,001 to £20,000,000 | £70,000 | £71,850 | £109,050 |
| £20,000,001 and over | £140,000 | £143,750 | £218,200 |
From 1 April 2016 an ATED charge of £3,500 will be payable for enveloped properties worth between £500,001 and £1m.
Available reliefs
There are a number of available reliefs, subject to detailed conditions. For example:
- Dwellings let out on a commercial basis
- Historic houses open to the public
- Working farmhouses
- Dwellings held for charitable purposes
- Dwellings held for property development or trading
- Dwellings available for occupation by certain employees
Such dwellings will also be subject to a new form of capital gains tax (CGT) when they are sold - broadly, the sale price less the value of the dwelling as at 6 April 2013 (or date of purchase, if later) will be subject to CGT at a rate of 28%.
CASE STUDY
A dwelling has been held by an offshore company for many years.
The dwelling was worth £3m on 1 April 2012 and £3.2m on 6 April 2013. It is sold on 31 March 2020 for £4.2m.
The company will be liable for the following taxes:
ATED of £15,000 pa for the period of ownership from 1 April 2013 to 31 March 2020 = £105,000
The gain arising on sale, since 6 April 2013 is £1m which will be subject to CGT at a rate of 28% = £280,000
Total tax liability = £385,000
(Note that this example is somewhat simplified: The true ATED liability will be higher than indicated because ATED will be increased, each year, in line with inflation.)
Possible restructuring:
Structure 1
If the dwelling is taken out of the company into individual ownership, there will be no further liability to ATED or (assuming the individual is non-UK resident) CGT However, for a non-UK domiciled individual, direct ownership of the dwelling will have the disadvantage that the dwelling will be brought within his estate for inheritance tax (IHT) purposes. Also, the name of the individual will be recorded as owner of the dwelling at the Land Registry giving rise to loss of anonymity.
Structure 2
If the company retains legal title to the dwelling but declares that it holds the dwelling as nominee for the individual, the tax consequences will be the same as for Structure 1 but the company will remain recorded as the owner of the dwelling at the Land Registry so anonymity will be preserved.
Structure 3
Depending on the precise facts, it should normally be possible to implement a structure with all the benefits of Structure 2 (i.e. so that anonymity will be preserved and there is no ATED or CGT) but without bringing the dwelling into the individual's estate for IHT purposes.