Annual Tax on Enveloped Dwellings (ATED)

Written by Arnold Hill on July 7, 2017

Although not a new tax, there have been changes with ATED since its introduction in 2013 which makes a refresher in respect of the current regime worthwhile.

From 1 April 2016 ATED applies to dwellings valued at £500,000 or more. If the dwellings were owned on 1 April 2012, it is the 2012 open market value that is relevant, but if the dwelling was acquired after 1 April 2012 it is the open market value of the purchase date that matters. You need to be careful where there is substantial acquisition after the first interest in the property was acquired e.g buying an adjacent property or acquiring a freehold interest. Where a substantial acquisition of £40,000 or more arises, the dwelling should be revalued and moved into the appropriate ATED band. There is a similar rule for substantial disposals.

ATED requires the dwellings to be revalued every five years and so the first revaluation date is 1 April 2017. If you have ATED related property it is important to have that valuation done now as this will affect your charging band from 1 April 2018.

In terms of the ATED reliefs, these originally had to be claimed on a dwelling by dwelling basis. However, from 1 April 2015 owners have been able to file Relief Declaration Returns which enable them to claim ATED relief for all dwellings in a particular relief category rather than having to submit individual returns.

ATED-related CGT has also been introduced and takes priority over Non-Residents Capital Gains Tax. Depending on the date of acquisition, the ATED-related gain is the difference between the sale proceeds and the open market value of the property on the commencement date. The commencement date for these purposes is the date on which the interest in the dwelling was first within the ATED regime. There are relievable days which are broadly those days where ATED reliefs applied, such as let property days, and the effect of these relievable days is that it is only the gains that accrue to the ATED chargeable days as a proportion of the total days since the commencement date that is chargeable. There is also an automatic revaluation of the property for ATED-related CGT on the commencement date, effectively sheltering any pre-commencement date valuation increase from the ATED-related CGT charge.

Regrettably that is not the end of the story for Non-Resident non-natural persons as HMRC have separately introduced a Non-Resident CGT charge on UK residential property such that non-UK sellers of UK residential property are liable to CGT on any gain arising. So as to prevent double taxation, the ATED-related gain is deducted in computing the Non-Resident gain, but where ATED-related gains are sheltered through the relievable days, HMRC simply tax the gain elsewhere through the disposal by the non-resident non-natural person.

The information in this article is believed to be factually correct at the time of writing and publication, but is not intended to constitute advice.  No liability is accepted for any loss howsoever arising as a result of the contents of this article. Specific advice should be sought before entering into, or refraining from entering into any transaction.