What’s an Enveloped Dwelling?

Recent changes in UK legislation have made dealing with the UK tax affairs of companies owning property in the UK much more complicated. Most residential properties (dwellings) are owned directly by individuals. But in some cases a dwelling may be owned by a company, a partnership with a corporate member or other collective investment vehicle. In these circumstances the dwelling is said to be 'enveloped' because the ownership sits within a corporate 'wrapper' or 'envelope'.What follows applies equally to UK companies and overseas companies, some partnerships and some trusts and does not apply to individuals.

What’s the Annual Tax on Enveloped Dwellings (ATED)?

The Annual Tax on Enveloped Dwellings (ATED) applies to all companies owning UK property and equally to non-resident companies holding property in the UK.

From April 2016 the threshold is property worth more than £500k as at 5th April 2012. From April 2018 the threshold will be £500,000 as at 5th April 2017.

The current tax rates can be found at Rates and Tables.

Currently there is relief given where the property is let commercially however this relief is not automatic, it has to be claimed on the annual ATED Relief Declaration – lettings. To complete the return we will need a new agent authorisation, and you will need to establish the value of the property at 5th April 2012, 5th April 2017, and then every fifth year thereafter though you do not need a professional valuation.

The relief  from ATED may reduce the ATED tax payable to zero, however there are still penalties for failing to submit a return on time or for using an incorrect valuation.

Currently the relief for a let property is 100%. This may not always be the case.

Similarly if you or a member of your family ever stays in the property, even for one night you lose the relief not only for that year but may also lose the relief for other years as well.

If your property is subject to ATED then a higher rate of Capital Gains Tax (currently 28%) will apply when you sell it for more than you paid to buy it.

Please remember too that in a spirit of openness and cooperation most national tax agencies (including HMRC) now share tax data. For more information click on this link.

Get in touch today to find out how we can help you with your ATED Return.