Annual Tax on Enveloped Dwellings (“ATED”) Print

This anti-avoidance measure was introduced to deter the purchase of residential property in the UK by what is described as non-natural persons (“NNPs”). The target was companies and similar structures used to purchase an interest in single high value residential property valued at more than £2m. This came into effect for properties owned by NNPs on or after 1 April 2013.

Part of the package of measures was an increase in the rate of Stamp Duty Land Tax (“SDLT”) to 15% on high value residential property in the UK acquired by NNPs, and this took effect from 12 March 2012. At the time this charge was introduced the SDLT payable was 7% if the property was acquired by a “natural person”. Following the SDLT reforms from 4 December 2014, the rate of SDLT applied to residential property in excess of £2m has now become less of a deterrent to acquiring property by NNPs.

For these purposes an NNP is:

A company or other body corporate;

A partnership where one or more members of the partnership is a company;

A collective investment scheme.

Various reliefs are available so that the ATED charge does not apply in most situations where the dwelling is being used for commercial purposes. These reliefs are discussed in detail later in this section. However, certain safeguards have also been effected so that if within 3 years of the date of the transaction the property is no longer held for a purpose for which the relief was claimed, or is kept for personal or family occupation, then additional SDLT will be charged as if the acquisition was chargeable at 15%.

In addition to the increase in SDLT to 15%, the legislation provides for:

An annual tax charge based on the value of the property at the time of purchase, or if already owned on 1 April 2013, the value of the property on that date; and

A CGT charge on disposals by all NNPs. This was the commencement of CGT being charged on the disposal of residential property in the UK where the person making the disposal was not resident in the UK.

The ATED came into effect from 1 April 2013 and is initially based on the market value of the property on 1 April 2012, or on the date of purchase if that is after 1 April 2012. Thereafter the properties must be re-valued every 5 years. For properties owned at 1 April 2012 a revaluation was required as at 1 April 2017, and that revalued amount forms the basis of the ATED charge for the 5 years from 1 April 2018.

As mentioned above when introduced the ATED charge applied to properties valued at more than £2m. From April 2015 properties valued at more than £1m were brought within the charge, and from April 2016 the charging threshold was reduced to £500,000

The ATED payable depends upon which of the bands of values into which the relevant property falls, and the amount payable is index-linked in line with the Consumer Prices Index (“CPI”). The amounts chargeable for the period 1 April 2019 to 31 March 2020 are as follows:

Property Value, £ ATED Payable, £ £
500,001 to £1,000,000 3,650 (3,600)
1,000,001 to 2,000,000 7,400 (7,250)
2,000,001 to 5,000,000 24,800 (24,250)
5,000,001 to 10,000,000 57,900 (56,550)
10,000,001 to 20,000,000 116,100 (113,400)
Over 20,000,000 232,350 (226,950)

The ATED is charged at the beginning of each year, and the ATED for 2019/20 is payable by 30 April 2019.

The charge is time apportioned on a daily basis if the property is acquired or disposed of during the relevant year.

Relief from ATED is due if the dwelling:

  • Is held for a property rental business where it is let out to a third party on a commercial basis and is not at any time occupied by anyone connected with the owner;
  • Is open to the public for at least 28 days per annum. If part of the property is occupied as a dwelling in connection with running the property as a commercial business open to the public, the whole property is treated as one dwelling and relief applies to the whole property;
  • Is part of a property trading business and is not, at any time, occupied, or available for occupation by anyone connected with the owner;
  • Is part of a property developer’s trade where the dwelling is acquired as part of a property development business, and the property was purchased with the intention to re-develop it, and sell it on. It must not, at any time be occupied or available for occupation by anyone connected with the owner.
  • Is held for the use of employees of the company, for the company’s commercial business provided the employee does not have an interest (directly or indirectly) of more than 10%. The employee’s duties must not include services for any present or future occupation of the property by someone connected with the company. The relief is extended to partners who do not have an interest of more than 10% in the partnership;
  • Is a farmhouse which is occupied by a qualifying farm-worker who farms the associated farmland; a former long-serving farm worker or their surviving spouse or civil partner;
  • Is a dwelling acquired by a financial institution in the course of lending;
  • Is owned by a provider of social housing.

Where relief is due, an annual ATED Return must still be made, and the relevant relief claimed.

In addition to the above reliefs certain NNPs are exempt from the ATED charge. These are:

  • Charitable companies where the interest in the dwelling is held for charitable purposes;
  • Public bodies, and
  • Bodies established for national purposes.

ATED Returns and payment of the ATED charge must be made by 30th April each year.

For dwellings acquired after 1 April in an ATED period, the first self-assessment of ATED and payment must be made within 30 days of acquisition. For dwellings that otherwise newly come within the ATED charge, for instance it has been newly constructed, or there is a change of use, the return, and payment must be made within 90 days.

Where relief is due against the ATED, for example because the dwelling is acquired as part of the non-natural person’s property business, a return must still be submitted, and the relief claimed.

The third measure within this anti-avoidance package was the introduction of a CGT charge from 6 April 2013 on gains made by all NNPs on the disposal of UK residential property with a value exceeding £2m. This includes UK companies as well as overseas companies.  This is subject to the reliefs listed above in connection with the ATED. The rate at which CGT is charged is 28%. There has been no need to extend the ATED CGT charge to the lower value properties which came within the ATED charging provisions from April 2015, and April 2016 because all UK residential property came within the charge to CGT from April 2015. The ATED CGT charge is being abolished for disposals after April 2019, being part of the expansion of the CGT regime to include disposals of UK commercial property by non-UK residents. (See CGT section on Non-Residents owning UK Property)

A tapering provision provides that the ATED gain is restricted to an amount equal to five-thirds of the proceeds in excess of the £2m threshold. This would only appear to be relevant in respect of dwellings which are acquired after 6 April 2013 for less than £2m, or valued at less than £2m on that date, which are subsequently sold for more than £2m.

The following example shows how the ATED gain and the non-resident CGT charge on UK residential property interact:

Example

Dwelling acquired by NNP in May 2013 for £1,500,000, and sold in October 2018 for £2,300,000. The value of the property in April 2015 was £1,600,000. Assume indexation relief during the period April 2015 to December 2017 (Indexation is not due after 31 December 2017) is 7.8%.

ATED Gain:
The gain, without tapering would be £800,000 (£2,300,000 – 1,500,000)

With taper the gain is restricted to:
Proceeds in excess of £2m (£300,000) x 5/3 = £500,000.

Non Resident CGT charge:

Disposal proceeds 2,300,00
Value at April 2015 1,600.000
Indexation relief @7.8% 124,800
1,724,800
Gain 575,200

The ATED gain is charged at the rate of 28% and is charged in priority to the new charge on non-residents, so the tax on this element of the gain is £140,000 (£500,000 @ 28%).

The non-resident CGT charge is charged at the rate of 20% and is reduced by the gain charged under ATED, so this becomes £75,200 (£575,200 -£500,000) and the tax payable is £15,040 (£75,200 @ 20%).

Accordingly the total tax payable on the gain is £155,200.

Where a NNP disposes of a dwelling on which the ATED has been charged, and the property was owned prior to 6 April 2013, the period of ownership should be split into two parts:

  • Period of ownership before 6 April 2013, and
  • Period of ownership after 5 April 2013

The pre 6 April 2013 part of the gain is based on the difference between the disposal proceeds and the value of the dwelling on 5 April 2013. The part of the gain arising after 5 April 2013 is calculated by reference to the disposal proceeds in excess of the value at 5 April 2013. The gain is then time-apportioned between the period chargeable to ATED, and any period of ownership from 6 April 2013 during which ATED is not chargeable by reason of the reliefs available.

A UK NNP is taxable on the whole gain, and Indexation Relief is due in respect of the non-ATED period only. It should also be noted that the ATED gain is taxable at 28% whereas the non-ATED gain is charged at the normal corporation tax rate of 20%.

For a UK NNP the following example sets out how the gain is calculated:

Example
Residential dwelling bought in April 2007 for £3,000,000 and sold in April 2018 for £6,000,000. At 5 April 2013 the dwelling was valued at £5,000,000.
Estimated Indexation Factors:

April 2007 to April 2013                  0.3
April 2007 to December 2017         0.4
April 2013 to December 2017          0.1

Total number of days chargeable to ATED          700
Total days April 2013 to disposal                           1,826

Step 1
Calculate post April 2013 gain:

£
Disposal proceeds 6,000,000
Market Value at 5 April 2013 5,000,000
Notional post April 2013 gain 1,000,000

Step 2
Apportion post April 2013 gain between ATED and non-ATED periods:

Days chargeable to ATED (as above)                             700

Total days in period from April 2013 (as above)      1,826

£
ATED related gain

(£1,000,000 x 700/1826)

383,351
Non-ATED gain before notional indexation

(£1,000,000 – £383,351)

616,649

Step 3
Calculate pre April 2013 gain:

Market value at 5 April 2013 5,000,000
Cost 3,000,000
Indexation (£3,000,000 x 0.3) 900,000
3,900,000
Notional pre April 2013 gain 1,100,000

Step 4

Calculate non-ATED post April 2013 indexed gain:

Non-ATED part of gain (from Step 2)               616,649

Indexation for period to Dec 17 5,000,000
3,000,000 x 0.4 1,200,000
Indexation (£3,000,000 x 0.3) 900,000
300,000
Proportion relating to non-ATED
Period post April 2013
(1,826 – 700)/1,826 x 300,000 184,995
431,654

Calculate non-ATED post April 2013 indexed gain:
Non-ATED part of gain (from Step 2) 616,649
Indexation for period to Dec 17
£3,000,000 x 0.4 1,200,000
Less indexation from Step 3 900,000
300,000
Proportion relating to non-ATED
Period post April 2013
(1,826 – 700)/1,826 x 300,000 184,995
431,654
Step 5
Step 3 Gain                         1,100,000
Step 4 Gain                             431,654
Non-ATED gain                  1,531,654

The non-ATED gain at Step 5 (£1,531,654) is charged to tax at the normal corporation tax rates. The ATED-related gain at Step 2 (£383,351) is charged to CGT at the rate of 28%.

Under the provisions of S13 TCGA 1992, a UK resident participator who together with his associates controls more than 25% of the voting rights in an offshore company is likely to be taxable on gains made by that company. This charge is excluded to the extent that the gain relates to an ATED gain which is chargeable directly on the offshore company.

With the new CGT rules combined with ATED, and the IHT changes from April 2017, the holding of UK property through offshore structures is becoming far less advantageous than in prior years, and in many cases the tax charge will be greater than if the property is owned by the individual directly.

Start a Conversation

How can we help you? Please complete all fields