The ATED – What you need to know
High value residential properties that are owned by 'non-natural persons' (i.e. a company, a partnership with a corporate member, or other collective investment vehicle) are subject to the Annual Tax on Enveloped Dwellings charge, payable each year.
The ATED came into effect from 1 April 2013 and originally applied to any dwelling situated in the UK valued at more than £2 million on 1 April 2012, or at acquisition if later, provided that it was owned completely or partly by a non-natural person. The ATED is simply a measure to discourage enveloping properties in order to avoid stamp duty land tax (SDLT).
The 2014 budget announced that the ATED received 5 times the amount forecast for 2013-14, with significantly more properties above £2 million in envelopes than had been expected. As a result, the new budget announced that they were introducing two new bands to the ATED to bring properties between £500,000 to £1 million and £1 million to £2 million into the charge. The latter band comes into effect from April 2015 and the lower band from April 2016.
For the 2014-15 period (the ATED is charged in advance), the charge for a property valued between £2 million but no more than £5 million is £15,400, and between £5 million and £10 million, £35,900 set to increase each year in line with the Consumer Prices Index.
Continuing on their mission to ensure that a fair share of tax is paid, the Autumn Statement announced that there will be an increase in rates of ATED by 50% above inflation. From 1 April 2015, the charge on residential properties owned through a company and worth more than £2 million but no more than £5 million will be £23,250; properties worth £5 million but no more than £10 million the charge will be £54,450; and the upward scale continues, a considerable hike for a charge that originally collected five times the expectation.
No announcement has yet been made regarding the charge for the lower bands being introduced in the forthcoming years, but residential properties owned by a non-natural person can still continue to benefit from exemption from the charge if let, or if in the process of development, however a mandatory return seeking these exemptions is required to be filed with HMRC.