Penalty warning – Annual Tax on Enveloped Dwellings (ATED)

Sep 6, 2022 | Tax Tuesday, Taxation

The Annual Tax on Enveloped Dwellings (ATED) was introduced in 2013 as one part of HMRC’s multi-faceted assault on high value residential property being held by companies.

In some cases, holding property in this way traditionally had been attractive for purposes such as stamp tax minimisation.

The ATED applies to companies, partnerships with a company as a member/partner and collective investment trusts owning ‘dwellings’ with a taxable value of over £500,000.

Currently ATED charges start at £3,800 for properties with taxable values of between £500,001 and £1,000,000 and is a maximum of £244,750 for dwellings over £20,000,000.

There are some exemptions meaning ATED filings will not be required e.g. charities.

There are also some situations in which full relief from the ATED charge can be claimed, one of the most common ones being for property rental businesses.

However, the difference between an ATED exemption and an ATED relief is that while there are no HMRC filing requirements for the former, relief returns need to be filed for the latter.

Where needed, ATED returns/ATED relief returns must be filed after a residential property is first acquired (within 30 or 90 days depending on the circumstances) and then annually thereafter (by 30 April).

A big problem is that for the ordinary person, ATED is one of the lesser-known taxes.

When a company buys a residential property, the solicitor will carry out the legal work but will not normally advise on tax requirements (outside of dealing with stamp duty land tax liabilities on purchase).

This means the first the owner of a company hears of the ATED requirement is often long after the property purchase, and certainly well after the time an ATED return or relief return should have been filed.

The structure of HMRC’s penalty regime for late returns is punitive even for those companies who do not need to pay the ATED charge but do need to file relief returns (such as property investment companies).

There are tax-geared penalties for those with a liability but even for relief returns, there will be a £100 initial penalty, a £10 daily penalty (up to a maximum of 90 days) if the return is still outstanding after three months and then a further £300 if the return is still outstanding after six months.

A property rental company with no ATED liability may therefore find themselves with fines of £1,300 simply for not knowing there is a requirement to tell HMRC no ATED is due on a property purchase!

This seems punitive and disproportionate and has resulted in a number of cases being taken to the tax tribunals.

The recent Upper Tribunal case of Priory London Limited v HMRC has decided the issue in HMRC’s favour, ruling that HMRC has the right to charge the penalties.  The taxpayer may appeal the decision but it is thought this is unlikely.

It is therefore now more vital than ever that companies acquiring residential property are alive to the ATED reporting requirements.

ATED will not necessarily be flagged by solicitors advising on property purchases and it is your writer’s hope that this blog will help some unwary taxpayers avoid this unpleasant penalty trap.

Questions about tax planning? Contact your usual relationship principal, email or call 0161 905 1616.

The author takes every care in preparing material to ensure that the content is accurate and up to date. However no responsibility for loss occasioned to any person acting or refraining from acting as a result of this material or from making use of this material can be accepted by the author.