Annual Tax on Enveloped Dwellings (ATED): What changes are happening in 2022 and how might it affect you?

As the start of another tax year looms, many businesses will be starting to consider their annual filing requirements and planning for the year ahead. One of the first filings due at the start of any new tax year relates to the Annual Tax on Enveloped Dwellings (ATED).

Businesses that own residential property are likely to already be aware of the ATED regime so the annual filing requirement for those within the regime should come as no surprise. However, all businesses owning UK residential property, whether already within the ATED regime or not, need to be aware of a requirement to revalue properties every five years.

1^st April 2022 marks the next valuation milestone and with recent movements in the housing market, businesses with properties that previously fell below the ATED threshold may now find that not only could they have an annual filing requirement, but they may also be subject to a charge.

What is ATED?
Brought into effect in 2013, ATED was initially designed to deter companies and similar entities from owning high-value UK residential property to minimise taxes such as stamp duty land tax (SDLT). In its initial phase, ATED only applied to properties valued in excess of £2m but as the years have gone by, the valuation bandings have decreased significantly. At present, properties valued at more than £500,000 may be caught by the regime.

If properties fall into the regime and do not qualify for any relief, an annual tax charge will arise. ATED charges are calculated with reference to valuation bandings rather than a percentage so the payment due is directly related to the value of a property. The smallest charge for the 2023 year is £3,800 with the largest for properties worth in excess of £20m being £244,750.

Taxpayers are expected to complete an annual return for the year ahead and returns must be submitted by 30th April. At the time of writing the next return for the year ended 31^st March 2023 will become due on or before 30^th April 2022.

What’s happening in 2022?
The ATED rules require that UK residential properties held by companies and similar entities are revalued every five years and the next revaluation date is 1^st April 2022. All residential properties owned by companies and similar entities will therefore need to be valued as close to this date as possible.

Whilst this revaluation requirement may not have previously been a significant concern to a lot of businesses, UK house prices increased by 10.8% during the year to December 2021 so this particular valuation date could trigger an ATED filing requirement for companies previously outside of the regime or could shift properties already subject to the regime into higher ATED valuation bands.

Is there any relief available?
As detailed above, ATED can apply to any UK residential property worth in excess of £500,000. However, certain properties such as hotels and student accommodation are exempt from the charge and if properties are held for development or used as part of a commercial letting business, relief from the annual charge may be available.

This doesn’t mean that companies fall out of the ATED regime entirely if a relief is available – returns still need to be submitted to HMRC to claim the relief by the usual deadline of 30^th April.

What do businesses need to do?
First and foremost, you’ll need to consider your portfolio. If you believe that any of your properties may be worth in excess of £500,000 you will need to undertake a valuation. Whilst a formal valuation is not strictly required engaging the services of a surveyor or land agent is recommended to ensure that any valuation is robust.

In the event that any of your properties are worth in excess of the threshold, you will have an ATED filing requirement. HMRC provide a year’s grace to assist in preparations so the first return you’ll need to submit will be for the year to 31^st March 2024 and this will be due on 30^th April 2023.

If you believe that your business may be subject to ATED for the first time, or to a significant increase in payment, use this year’s grace to explore mitigation strategies and to consider the impact on your cashflow. An increase in costs is a strain to any business but if a relief could be available, this is certainly something that should be considered further.

If at any point you are unsure about how ATED may affect your business, submitting returns or even if you’re questioning whether ATED may apply to you, speak to a friendly professional who can guide you through the process. Either myself or one of my team at MHA Monahans would be more than happy to help.

Stephanie Hurst