HMRC have issued reminders to companies taxed under the Annual Tax on Enveloped Dwellings (ATED) scheme that they must revalue their property in 2023.
Properties held in envelope schemes must be revalued every five years in line with ATED legislation.
This chargeable period (2023 to 2024) is a revaluation year.
Companies must use the valuation date of 1 April 2022 or the date of acquisition if later, to properly revalue their properties.
What is ATED?
The tax was initially introduced in April 2013 and the lowest-value property the charge could apply to was £2m. This was reduced to £1m in April 2015 and is currently at £500k as of April 2016.
All properties which are liable for ATED must be revalued every five years after acquisition.
Therefore, the ATED return and payment for 2023/24 would be based on the value of the property as assessed at 1st April 2022.
If the property is mixed-use, for example, residential and non-residential, it is only necessary to value the residential part.
For properties with more than one dwelling, such as self-contained flats, each flat will be a dwelling and has to be valued separately.
What is an enveloped dwelling?
An enveloped dwelling is a residential property that is owned or ‘enveloped’ within a corporate wrapper.
If a property fits the criteria of an ‘enveloped dwelling’, it must be valued on acquisition to determine whether it will be subject to the ATED charge.
If it does, an annual ATED return will be required.
The tax charge has risen by around 10% a year for most property bands.
Chargeable amounts for 1 April 2023 to 31 March 2024:
|Property Value||Annual Charge|
|>£500,000 up to £1m||£4,150|
|>£1m up to £2m||£8,450|
|>£2m up to £5m||£28,650|
|>£5m up to £10m||£67,050|
|>£10m up to £20m||£134,550|
Why have HMRC introduced the policy?
HMRCʼs objective is ‘to ensure that non-natural persons (NNPs) holding high-value residential properties pay their fair share and to ensure tax avoidance is tackled, including the wrapping of residential property in corporate and other ‘envelopes’.
As ATED is a self-assessing tax, taxpayers must determine their own liability.
For the avoidance of doubt, ATED applies to relevant UK-resident as well as non-UK-resident NNPs.
What dwellings are not impacted?
However, not all high-value dwellings held in corporate wrappers are subject to ATED.
Several reliefs or exemptions can apply, these include:
- Property-development, investment, rental, and trading businesses
- Residential properties open to the public for at least 28 days a year on a commercial basis
- Residential properties held for employee accommodation
- Residential properties owned by a charity and held for charitable purposes
- Properties owned by providers of social housing
- Working farmhouses
- Diplomatic properties
- Some other publicly owned residential properties
For instance, if the valuation is within 10% of one of the ATED band boundaries, the taxpayer may request an HMRC free pre-return banding check (PRBC).
However, the taxpayer must know whether an ATED charge is payable for the property and if a relief is not due that would reduce the charge to nil.
If there is no ATED charge due, HMRC will not provide the PRBC.
If you are liable for ATED and you fail to submit the required annual return, or ATED relief declaration if you are exempt, you will automatically receive a late-filing penalty.
Even if no ATED is payable, these fines can amount to £1,600 if a return is over six months late.
HMRC will even issue fines at £10 per day for up to 90 days in relation to ATED returns that have been delayed for more than three months.
Furthermore, if you pay the incorrect amount of ATED, this can also result in late-payment penalties as well as an interest charge.
Therefore, it is crucial to ensure you know how much you should be paying and when.
How Williamson & Croft can help
Between constant legislative changes and ever-changing market conditions, Williamson & Croft understand the volatility of the property sector and the challenges that arise within it. We’ve worked in the industry long enough to know the financial and tax challenges that property businesses face every day, from funding through to complex tax legislation.
Regardless of whether you’re a developer, investor, or landlord, you need an accountancy firm that can navigate the ins and outs of the industry while providing advice that ensures your business comes out on top.
Contact us today to discuss how we can help you.