Annual Tax on Enveloped Dwellings (ATED) is an annual tax payable mainly by companies that own residential property in the UK with a value of £500,000 or above. It is charged on the value of the Single Dwelling Interest of a residential property. The revaluation dates occur every five years from 1 April 2012, meaning the next revaluation date of 1 April 2022 is nearly upon us. 

ATED relates to the apportioned value of the residential element of a property and its immediate gardens and grounds. This is key, especially if the dwelling forms part of a wider estate, as only the value of an individual residential property is chargeable – the value of any surrounding land, buildings or woodland is not.

To illustrate the point, let’s take a hypothetical example of a small rural estate in company ownership, comprising a mansion house, a cottage and 150 acres of land which have a combined market value of £1,500,000. Under ATED, this would be apportioned at say £950,000 for the land, £150,000 for the cottage and £600,000 for the mansion house, the Single Dwelling Interest in this case. As the mansion house element is above £500,000 it would be liable for tax under ATED.

The amount of tax payable is calculated based on the value of a property and is set out using a banding system that can be seen below.

The property value used is set at a specific date. This is to be the later of the initial valuation date (meaning the date of acquisition or completion) or the revaluation date. The basis of value is Market Value and takes into consideration a willing buyer and seller, the current market and also any occupational agreements in place.

While we would always advise getting any properties that may be chargeable under ATED valued as at the revaluation date, it is particularly important for those that may be on the boundary of two bands: significant savings can be made by being in a lower band, or falling below the threshold entirely. Similarly it is helpful to be aware of the various reliefs and exemptions available, such as for a farmhouse that is occupied by a current or former farm worker.

It is hugely important to ensure properties are valued properly, on the correct basis of the Single Dwelling Interest and as a Red Book valuation carries liability this can be relied upon when making tax returns to HMRC.

Further information

Contact Louisa Robertson or Sarah Jackson