In recent years many landlords have preferred to set up a structure of a property limited company to ease the burden of tax. Of course, this can be a good choice. However, if you are letting out a residential property through a limited company you may have other tax obligations.
As a property investor, you may come across a lesser-known regulation called the Annual Tax on Enveloped Dwellings (ATED). If you are a landlord, this regulation could potentially impact you.
However, the good news is that most landlords are expected to qualify for lettings relief, which means that you may not have any tax liability. Nevertheless, it is possible that you may still need to submit a return, so it’s a good idea to stay informed about ATED if you are a landlord.
What is ATED?
Simply put, the Annual Tax on Enveloped Dwellings (ATED) is an annual fee applied to residential properties in the UK owned by entities known as Non-Natural Persons (NNPs).
To break it down further, a ‘dwelling’ is a building used for living, excluding places like hotels, guest houses or care homes.
NNPs could be companies or partnerships with one corporate partner.
How is ATED tax calculated?
An Annual Tax on Enveloped Dwellings (ATED) charge is applicable to properties valued over £500,000 and if you are renting out a residential property through a limited company. However, the charge does not apply if you own the property as an individual.
The charge must be paid in advance annually on or after 1st April. If your property falls under the scope of ATED, you must file a return by 30th April.
Any tax payable on the property must be paid by the same date. It’s important to note that the charge is paid in advance for the year until the end of March. Therefore, if you are paying the tax today, you will be paying for the period until 31st March 2025.
To work out what you need to pay, you need to work out the value of your property. We would always recommend that you use a reputable surveyor to carry out the valuations for you. You’ll need to revalue your property every five years.
The tax is calculated based on the following bands for the period 1st April 2024 to 31st March 2025:
| Property Value | Annual Charge |
| > £500K and up to £1m | £4,400 |
| >£1m and up to £2m | £9,000 |
| >£2m and up to £5m | £30,550 |
| >5m and up to £10m | £71,500 |
| >10m and up to £20m | £143,550 |
| >20m | £287,500 |
These charges increase each year with inflation.
When is an ATED Return needed?
An ATED return may be necessary if you are letting out a residential property through a limited company. The Return is made annually in advance and is due by 30th April.
It is important to note that there are consequences for failing to submit your tax return on time or providing inaccurate information. HM Revenue and Customs (HMRC) will impose penalties.
Additionally, if you purchase a new property within a certain timeframe, you will need to file a return within 30 days.
However, if the property is a new build, the deadline extends to 90 days from the date it is occupied or eligible for council tax.
You can use the ATED online service to submit the return and make the payment.
Charitable companies who use the dwelling for the purpose of the charity are exempt.
What is the Property Rental Business Relief
There are some reliefs available which can help reduce the ATED charge to zero. One such relief is the Property Rental Business Relief, which allows you to reduce the tax charge to nil if the property is let on a commercial basis.
However, it’s important to note that the property cannot be occupied by anyone connected with the company.
Qualifying for the relief does not exempt you from submitting the Return. So please remember to file the return on time.
Next steps
You can find the full guidance from HMRC on this topic here
This blog provides an overview of the ATED system, but we recommend seeking specific advice for your own personal circumstances.
Please feel free to contact your normal manager at Myers Clark for further help.
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