Annual Tax on Enveloped Dwellings (ATED)

ATED is an annual tax paid on residential properties in the UK owned by companies and valued at over £500,000. The 'chargeable periods' for this tax run from 1st April to 31st March. HMRC introduced this tax as part of the Finance Act 2013 to discourage the 'enveloping' of high-value residential properties in the UK, thereby avoiding several property-related taxes such as Stamp Duty Land Tax (SDLT), Inheritance Tax (IHT) and Capital Gains Tax (CGT).

Why is it called an enveloped dwelling?

Unlike individual property ownership, residences owned by a 'non-natural person', such as a company or a corporate vehicle, are not subject to the same tax liabilities. Since the property ownership sits within a corporate 'wrapper' or 'envelope', it is called an enveloped dwelling for tax purposes.

Who needs to pay ATED?

Companies owning interests in properties valued at over £500,000 need to file an ATED return within 30 days of acquisition or of the current chargeable period (whichever comes first). For example, for the chargeable period from 1 April 2025 to 31 March 2026, the last date to submit returns and pay ATED was 30 April 2025. Alternatively, if a company acquired a property on 1 November 2025, the deadline to submit and pay the ATED would be 30 November 2025.

For newly built properties, ATED returns must be filed within 90 days of the property becoming a dwelling for council tax purposes or being occupied, whichever comes first.

Is it necessary to file an ATED return if no tax is due?

Yes, an ATED return must be filed even if no tax is due, provided the property is a UK residential dwelling valued over £500,000 and is owned by a non-natural person (such as a company or a partnership with a corporate member).

How is the ATED rate determined, and are there any tax bands?

The ATED rate for a property is decided by its market value as of a specific cut-off date, which is updated every five years. For example, the amount of ATED chargeable on a property for the year 2025-26 depends on its valuation set on 1 April 2022. The next revaluation date will be 1 April 2027, impacting ATED charges from 1 April 2028 to 31 March 2033.

Here's a table showing ATED rates when it was first introduced in 2013-2014, along with the current and next year's rates.

While ATED charges have increased by over 100% since the tax began in 2013, the annual difference between this year's and next year's charges per band is between 3% and 4%.

What is the penalty for missing the ATED deadline?

There are fixed, daily and cumulative fines that apply for missing the ATED deadline to submit returns and even for the submission of incorrect details. Therefore, owners of such properties are advised to engage a property tax professional to avoid fines.

If we consider a property worth £1.5m, the ATED due at the current rate is £9,150. However, if the owner fails to file the return on time, the total ATED late filing penalties after 12 months could be over £1,900.

While the fines for missing the deadline are lower, HMRC can also charge penalties of up to 100% for incorrect disclosures, depending on whether the offence is deliberate or non-deliberate. Deliberate offences, including concealment of information, attract the highest rate of 100%.

Are there any reliefs and exemptions from ATED?

There are special reliefs available to taxpayers that can reduce their tax liability or make it zero under certain circumstances. These include

• Letting the property to a third party on a commercial basis, and not occupied by the owner or anyone connected to the company
• Open to the public for at least 28 days a year.
• Being developed for resale by a property developer
• Owned by a property trader as the stock of the business for the sole purpose of resale
• Repossessed by a financial institution as a result of its business of lending money
• Acquired under a regulated home reversion plan
• Being used by a trading business to provide living accommodation to certain qualifying employees
• A farmhouse occupied by a farm worker or a former long-serving farm worker
• Owned by a registered provider of social housing or a qualifying housing co-operative

While reliefs are available, they need to be claimed by filing an ATED relief declaration return. Sections 30 to 41 of the ATED technical guidance explain in detail the criteria to claim reliefs.

Unlike reliefs, properties that qualify for an exemption do need to file a return. However, for a property to be exempted from ATED, it cannot be a profitable enterprise, as only charitable companies using the dwelling for a charitable cause or public bodies established for national purposes are entirely exempt from paying ATED.

Can a property be de-enveloped?

To de-envelope an enveloped dwelling, the property ownership needs to be transferred from a corporate entity to an individual. This legal process can be complicated, as it brings into the scope potential SDLT, CGT and IHT implications. Professional tax advice on de-enveloping is crucial to realise the actual benefit of such a transition.

How Benham and Reeves can help with ATED

We offer a dedicated tax return service for individual and company-owned residential properties in the UK. Whether it is the timely filing of ATED returns, making sure all possible reliefs are claimed, or identifying existing compliance issues and bringing tax affairs up to date, our tax experts are here to help you.

In addition to our legacy of over 65 years, we also offer hands-on support with 21 London branches and 13 international offices to help clients with all their property needs. Contact us to discuss your property requirements.