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Most dwellings are owned directly by individuals but in some cases a dwelling may be owned by a company (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’.
ATED is a tax payable by ‘non natural persons’ (i.e. certain companies, partnerships and collective investment vehicles) that own an interest in high value dwellings. It was introduced by the Finance Act 2013 (FA 2013) and came into effect on 1 April 2013.
ATED is payable each year and taxpayers need to complete a separate ATED Tax Return for each property in which they have an interest if all of the following apply:
- The property is a dwelling (see paragraph 12.4 below).
- The property is situated in the UK.
- The property had a value of more than £2 million on 1 April 2012, or at acquisition or if later (see paragraph 12.5 below).
- The property is owned, completely or partly, by a company, a partnership where one of the partners is a company or a 'collective investment vehicle' (for example, a unit trust or an open ended investment company).
There are reliefs that could in some cases reduce the tax completely but taxpayers can only claim these reliefs if they complete and send in an ATED tax return. If a company owns multiple properties that are all covered by the same relief they can submit a return for one of the properties and separately send a list of the other properties held that are covered by the same relief.
ATED tax returns and payments have to be submitted to HMRC by 30 April at the beginning of each ATED period. An ATED period lasts for one year and begins on 1 April. For the first year of ATED only (i.e. for the period beginning 1 April 2013) the tax return is not due until 1 October 2013 and payment is not due until 31 October 2013.
If a dwelling first falls within ATED on a date after 1 April in an ATED period, then the return and payment are due within 30 days where purchased or 90 days where the dwelling is newly built. For example, if a taxpayer purchased a property on 1 July, their return and payment would normally be due on 31 July.
The amount of ATED payable depends on the band into which the value of the property falls:
Annual Tax 2013-14
>£2 million to £5 million
>£5 million to £10 million
>£10 million to £20 million
If a taxpayer only owns the dwelling for part of a year, or they change how they use the property so that it moves into or out of ATED during the year, then ATED applies on a proportionate basis.
The amount of ATED payable in the tax years 2014-15 to 2017-18 will be increased in line with increases in the Consumer Price Index.
The value of a dwelling for the purposes of ATED is the ‘market value’ of the property on the relevant day and s.98(8) FA 2013 provides that ‘market value’ is to be determined as for the purposes of the TCGA 1992 (see sections 272 of that Act). Guidance on the meaning of ‘market value’ for the purposes of the TCGA 1992 is contained in Section 7, paragraph 7.1 of this Manual.
If it is necessary to value only part of a property (for example, if part of the property owned by the company is used for commercial purposes) then only the liable dwelling should be valued. Any necessary preliminary arrangements to enable a sale of the dwelling part only should be assumed to have been made before the hypothetical sale, in accordance with established case law.
The valuation date for ATED depends on whether the interest in the property was owned by the taxpayer on 1 April 2012 or whether it was acquired or built after that date.
- If the interest in the property was owned on 1 April 2012 then the valuation date is 1 April 2012.
- If the interest in the property is acquired after 1 April 2012 then the valuation date is the date of completion of the purchase or, if earlier, substantial performance of the contract.
- If the property is built after 1 April 2012 then the valuation date is the date when the property is first occupied, or the ‘completion day’ whichever is the earliest. The ‘completion day’ is the day on which the new dwelling is treated as having come into existence for the purposes of Council Tax.
The value of the property on the date specified under (a), (b) or (c) above will be used for the first 5 ATED return periods beginning 1 April 2013. All properties within ATED will be revalued again in five years time (i.e. 1 April 2017) to cover the ATED returns for the five year periods starting on 1 April 2018.
ATED applies to 'dwellings' as defined in s.112-119 FA 2013 and it is important that caseworkers understand the extent of the property to be valued. In particular:
The property to be valued will include all land that is, or is intended to be, occupied or enjoyed with the dwelling as ‘garden or grounds’ (including any buildings or structures on the land unless they are being used for a purpose covered by a relief). ‘Garden and grounds’ are not defined in the statute other than being land that is occupied and enjoyed by the taxpayer with the dwelling. Garden or grounds will normally include any land serving chiefly for ornament and recreation but not land used for agriculture, commercial woodland, trade or business. Paddocks and orchards may constitute ‘grounds’, provided that there is no business use.
b. Dwellings forming part of a larger mixed use property
If a dwelling forms part of a larger mixed-use property that has parts not used for residential purposes then only the residential part should be valued.
c. Other dwellings
If the property owned by the taxpayer (including any property owned by a company or person connected with the taxpayer) comprises of more than one dwelling or the taxpayer owns other adjoining dwellings then the property to be valued may include other associated dwellings. Associated dwellings should be included in the valuation if:
i) The associated dwelling is situated in the garden or grounds of a dwelling and occupied or enjoyed with that dwelling. (s.115 FA 2013)
ii) The associated dwelling is situated in the garden or grounds of the main dwelling and, although not occupied or enjoyed with that dwelling, it does not have ‘separate access’ (see paragraph 12.7 below) and is not being used for a purpose covered by a relief (see paragraph 12.12 below). (s.116 FA 2013)
iii) The associated dwelling is in the same ‘building’ (see paragraph 12.8 below), there is ‘private access’ (see paragraph 12.9 below) between the two dwellings and it is not being used for a purpose covered by a relief (see paragraph 12.12 below). (s. 117 FA 2013)
For the purposes of paragraph 12.6(c) (ii) above, an associated dwelling has ‘separate access’ only if:-
- There is access to the associated dwelling directly from a highway (in Scotland, a road) that the dwelling adjoins, or
- The person entitled to possession of the associated dwelling has access to that dwelling from a highway (in Scotland, a road), exclusively by passing over land that the person is entitled to pass over by reason of one or more rights of way or other interests in land to which the person is separately entitled.
For the purposes of paragraph 12.6(c) (iii) above, any structure (such as a terrace of houses or a pair of semi-detached houses) that is composed of or includes dwellings is regarded as ‘a building’.
For the purposes of paragraph 12.6(c) (iii) above, there is ‘private access’ between two dwellings if the person entitled to possession of each dwelling is entitled, by reason of a right of way or other interest in land, to have access to that person’s dwelling from the other dwelling, without passing over any part of the building (or any other land) in which a ‘third party’ has an interest entitling that third party to enter it.
A ‘third party’ means a person other than the persons entitled to possession of the dwellings in question and persons connected with any of them.
The interest to be valued is the actual interest held by the taxpayer at the valuation date.
Where companies or individuals connected to the taxpayer own other interests in a dwelling, then these should be added together for valuation purposes, i.e. the market value of each interest should be determined on the assumption that the other interest or interests are placed on the open market with that interest (s.109 FA 2013).
If, for example, the taxpaying company owned the freehold interest in a dwelling subject to a lease to an individual connected to the company, it would be appropriate to value the combined interests on the assumption that both were available to any prospective purchaser.
ATED does not apply to buildings used for the purposes specified in s.116(2) or (3) FA 2003. This includes, for example, hotels, guest houses, boarding school accommodation, hospitals, student halls of residence, military accommodation, care homes and prisons.
There are a number of reliefs that may mean that a taxpayer does not have to pay any ATED but they can only claim these reliefs by completing and sending in an ATED return.
A dwelling might get relief from ATED if it is:
- Let to a third party on a commercial basis and isn't, at any time, occupied (or available for occupation) by anyone connected with the owner.
- Held for charitable purposes.
- Open to the public for at least 28 days per annum.
- Held for the use of employees of the company, for the company’s commercial business and where the employee does not have an interest (directly or indirectly) in the company of more than 5 per cent. The employee’s duties must not include services for any present or future occupation of the property by someone connected with the company.
- A farmhouse, if it is occupied by the farmer who farms the associated farmland full time.
- Part of a property trading business and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner.
- Part of a commercial property development business, purchased with the intention to re-develop and sell it on and is not at any time occupied by anyone connected with the owner.
Full details of the above reliefs can be found on HMRC’s website.