Do you own a residential dwelling in a limited company? – Tax news on Enveloped Dwellings

There have been some changes for anyone who pays an Annual Tax on Enveloped Dwellings (ATED). The ATED is a yearly tax payable mainly by companies that own UK residential property valued at more than £500,000. It was introduced in 2012 to address the tax discrepancy that could arise when residential property is held by a limited company.

The current system

You’ll need to complete an ATED return if your property is a dwelling. Certain properties aren’t classed as dwellings – these include hotels, guest houses, boarding school accommodation, hospitals, care homes and prisons, amongst others.

The value is also a key factor too. You will need to pay ATED if the property was valued at more than £2 million (for returns from 2013 to 2014 onwards), £1 million (for returns from 2015 to 2016 onwards) or £500,000 (for returns from 2016 to 2017 onwards). Properties that are currently valued at less than £500,000 are not taxable.

Ownership is also a contributing factor, so ATED is payable if a property is owned completely or partly by a company, a partnership where any of the partners is a company, or a collective investment scheme (say, a unit trust or an open-ended investment vehicle).

The banded tax on these valuations starts at £3700 and runs upwards to £237,400 for properties valued at over £20 million. Returns must be made by 30 April of the year being charged – so, for the current term, the return for year-ending 31 March 2022 was due on 30 April 2022. In some instances, there are relief and exemptions from the tax – primarily where the property is held as part of a rental or property trading business, when it is occupied by a (non-connected) employee, or if it is a farmhouse. These reliefs are not automatic and must be claimed annually as part of the taxation procedure.

Rises in the market

It's now 10 years since ATED was introduced and this year some tweaks have been made to the taxation process. The legislation now requires revaluations to be carried out on every fifth anniversary of the introduction of the tax. Although this will vary regionally, most rural property will have risen in value hugely over that period – sometime by over 25%. This can cause a number of problems. Some businesses might have forgotten about the revaluation rules, so will use the same figures as previously and thereby under declare their tax.

In other instances, a business owning property that was worth slightly less than £500,000 in 2017, or having bought it subsequently, could be unaware of the tax and fail to submit a return on time, or indeed at all. Even if an exemption applies, that needs to be claimed, and late submission of a return will lead to a penalty fine. A further problem could be that properties that have slipped across into a higher band may face a sizeable tax increase. As the property valuations cross upward bands, this can mean a much higher tax bill for some property owners, that may have seen a considerable increase in their property’s value – and this is where Forge can help.

A true valuation

If you think that you may be eligible for an exemption, or if you are unsure of the valuation of your property or require a revaluation, then our experts can offer guidance and advice. If you think that a property you’ve purchased has crossed over into another valuation band, we can provide an accurate valuation at the current market rate. It’s best to be on the safe side and we can offer assurance that you are paying tax on the right valuation.