Demystifying Annual Tax on Enveloped Dwellings
Corporate investment into UK residential property has grown exponentially over the last couple of decades, due to the growing demand for build-to-rent properties and urban regeneration projects, as well as the UK property market providing corporate investors with stable and long-term returns.
Given this increasing demand in UK residential property investment, and the unfortunate ‘side-effect’ of tax avoidance through artificial structuring arrangements, the ATED rules were introduced by HMRC in 2013 (the infamous ‘Mansion Tax’), and have continued to evolve over time.
Does it apply to you?
The first and most important question you may ask is: when does ATED apply?
ATED (subject to reliefs and exemptions) is an annual tax levied on residential properties in the UK which are valued at more than £500,000, and which are held by ‘Non-Natural Persons’ (broadly companies, partnerships with corporate members, or collective investment vehicles (e.g. unit trusts)).
ATED does not apply to properties owned directly by individuals or trusts.
How is ATED calculated?
When the ATED charge applies, the amount of tax payable depends on the value of the property as at a specific valuation date.
The below summarises the 2024/25 (1 April 2024 to 31 March 2025) and 2025/26 (1 April 2025 to 31 March 2026) ATED charges:
Property Value Bracket | 2024/25 ATED Charge | 2025/26 ATED Charge |
£500k+ to £1m | £4,400 | £4,450 |
£1m + to £2m | £9,000 | £9,150 |
£2m + to £5m | £30,550 | £31,050 |
£5m + to £10m | £71,500 | £72,700 |
£10m + to £20m | £143,550 | £145,950 |
£20m + | £287,500 | £292,350 |
Is an exemption or relief available from the ATED tax charge?
The next question you are likely to ask is: can I claim an exemption or a relief from the ATED tax charge?
In fact, ATED has generous reliefs to remove a large number of properties from having to pay the ATED charge. Most commonly - UK residential properties used in a property rental business, property developers, and farmhouses on working farm businesses can claim relief from the ATED tax charge (amongst others).
However, to benefit from these reliefs, the annual return filings must still be made by the relevant deadline, even in the case that no tax is due, as the relief must be claimed.
Separately, certain types of entities holding UK residential properties are exempt from the ATED regime - for example, charitable organisations and publicly accessible properties. Such exempt entities are not required to submit ATED Returns.
Avoiding penalties
The ATED filing and payment deadline is dependent on when the property is within the scope of ATED – if it is as at 1 April 2025, the return and any payment of ATED will be due by 30 April 2025. Unusually, ATED is filed and paid in advance so any payment due (assuming an ATED charge applies) by 30 April 2025 would be the 2025/26 ATED charge. When an entity first comes into ATED (for example, by acquiring a property within the scope of ATED), ordinarily it needs to file its first ATED Return and pay any ATED charge due (if applicable) within 30 days (this can be extended to 90 days in certain scenarios).
If the ATED rules are not complied with, HMRC can and do issue significant penalties for both non-payment and non-declaration.
More HMRC scrutiny on the horizon?
HMRC have been active in ensuring compliance with ATED since it was introduced in 2013, however, it is now even higher on their agenda having commenced a recent ‘One to Many’ letter campaign. The timing is not surprising given the upcoming ATED filing deadline.
This (new HMRC) campaign is directed at offshore corporates that owned UK residential property over £500,000 that have reported consecutive property rental income losses on their self-assessment returns in the periods 2017 to 2020, but either: 1) filed ATED returns claiming the ‘qualifying property rental business’ relief and therefore did not pay any ATED charges, or 2) have not filed ATED returns nor paid any ATED charges.
In the event a relief has been incorrectly claimed, or returns have not been filed, HMRC may open a ‘discovery assessment’, and may seek to charge penalties and late payment interest on incorrect or missed filings and ATED charges.
We are here to help
Azets can help you navigate the ATED rules, identify if it is applicable to you, and review if any exemptions or reliefs may be available.
We can also support with the initial and ongoing compliance obligations to reduce your administrative burden and the risk of penalties for non-compliance.
If you receive a letter from HMRC as part of the ‘One to Many’ campaign, we can support with preparing an appropriate response to HMRC. Alternatively, if you are aware of missed ATED filings or incorrect filings made, we can support in making a voluntary disclosure to HMRC.
Please get in touch with your usual Azets advisor to discuss your specific circumstances and how we can help you manage your obligations.
