For property investors using corporate structures, the Annual Tax on Enveloped Dwellings (ATED) is a crucial consideration. With recent actions from HMRC, it’s more important than ever to ensure compliance and understand the implications of this tax.
What is ATED?
ATED is a tax payable by ‘non-natural persons’ – such as companies, partnerships with corporate members and collective investment schemes – that own UK residential property valued at over £500,000. Unlike other taxes, ATED looks ahead for the period from 1 April to 31 March. The tax is based on the value of the property unless an exemption or relief applies.
Who needs to pay ATED?
If your company owns a qualifying property, you must either:
- File a return and pay the ATED charge based on your property’s value band
- Claim a relief (if applicable) and file a return to confirm your exemption
Key ATED relief: Let property exemption
One significant relief applies to dwellings let to a third party on a commercial basis, provided they are not occupied or available for occupation by anyone connected to the owner. However, HMRC is now scrutinising whether companies genuinely meet this commercial test.
Some other reliefs may also apply to property if it is:
- open to the public for at least 28 days a year
- being developed for resale by a property developer
- owned by a property trader for the sole purpose of resale
- acquired under a regulated home reversion plan
- being used by a trading business to provide living accommodation to certain qualifying employees
Upcoming HMRC compliance checks
HMRC has announced that over the coming months, they will send ‘one-to-many’ letters to companies that:
- Own residential property valued above £500,000
- Declared no profits in Corporation Tax returns from 2017 to 2020
- Either did not file ATED returns or claimed commercial letting relief
These letters suggest that companies reporting no taxable profits may not have been operating with a genuine commercial intent – a requirement for the relief.
What this means for property investors
If you receive an HMRC letter regarding ATED, you will have 40 days to respond. Your options include:
- Providing further information to confirm eligibility for relief
- Making a disclosure if an ATED liability was previously overlooked
- Filing any outstanding ATED returns
Failure to respond could result in discovery assessments and penalties.
Key filing deadlines
ATED is payable for a chargeable period ending on 31 March each year. Returns must be filed within 30 days of the period commencing, so returns for the period 1 April 2025 to 31 March 2026 must be filed on or after 1 April 2025, and no later than 30 April 2025.
We urge property investors to start taking the follow proactive steps to ensure they meet the deadline:
- Review corporate property holdings and ensuring ATED compliance
- Check whether relief claims meet the strict commercial operation criteria
- Respond promptly to HMRC communications to avoid penalties
- Seek professional tax advice if unsure about your ATED position
With HMRC ramping up enforcement, ensuring compliance with ATED requirements is more important than ever. Property investors using corporate structures must stay informed and take necessary action to avoid costly penalties.
How can we help?
If you’re uncertain about your ATED obligations or need assistance responding to an HMRC letter, contact our specialist Property team.
Rebecca Holloway
Head of Property | Associate Director
0161 905 1616
rh@haroldsharp.co.uk