If your business owns residential property, you may need to pay tax this month

Many corporate entities and businesses purchase residential property to diversify and bolster their investments and generate profits through capital gains and rent.

However, this strategy is not without its liabilities.

Whilst you may be aware of the various taxes that apply to property – like Capital Gains Tax (CGT) or Council Tax – we often find that business owners are shocked when we mention a lesser-known tax called “ATED.”

The Annual Tax on Enveloped Dwellings (ATED) is a yearly tax primarily for companies owning UK residential properties which are valued at over £500,000.

The deadline for ATED returns is fast approaching too – you’ll need to submit your return by 30 April this year – and we’ve been working hard to submit these for our clients in the last few weeks.

(If you are yet to file your return, you must speak to a qualified accountant as soon as possible).

You must file an ATED return if your property meets the following criteria:

  • Is a dwelling
  • Is located in the UK
  • Its value exceeds £500,000
  • It is wholly or partially owned by a company, a partnership with a corporate member, or a collective investment scheme, such as a unit trust or an open-ended investment vehicle.

Your property qualifies as a dwelling if it is used, or is suitable for use, as a residence, such as a house or flat.

This includes any gardens, grounds, and buildings within them.

However, certain properties are not categorised as dwellings. These include:

  • hotels
  • guest houses
  • boarding school accommodation
  • hospitals
  • student halls of residence
  • military accommodation
  • care homes
  • prisons

The ATED is a fixed rate depending on the value of the property, rather than as percentage.

The chargeable amounts for between 1 April 2024 to 31 March 2025 are:

  • £500,000 up to £1 million = £4,400
  • £1 million up to £2 million = £9,000
  • £2 million up to £5 million = £30,550
  • £5 million up to £10 million = £71,500
  • £10 million up to £20 million = £143,550
  • Over £20 million = £287,500

As you can see, these charges are manageable and allow you to plan effectively because you know exactly how much the amount is going to be.

However, it’s important to know that these change every tax year, so you’ll need to stay up to date with Government announcements as we approach the end of each fiscal period to check on your liabilities.

You can also reduce your ATED liability through a series of tax efficiency strategies.

How to reduce your ATED amount

Businesses can significantly reduce or eliminate their Annual Tax on Enveloped Dwellings (ATED) charge by claiming specific reliefs, each designed for different uses of the property.

One major category of relief is for rental businesses.

If a property is let to a third party on a commercial basis and isn’t occupied or available for occupation by anyone connected to the owner, ATED relief can be claimed.

Similarly, property developers can claim relief if they are actively developing properties for resale, and property traders can claim if they hold properties as stock of the business for resale purposes.

For farmhouses, relief is available if they are part of a working farm and occupied by a farm worker or a former long-serving farm worker.

Social housing providers can also claim relief when properties are held by a registered provider of social housing or a qualifying housing cooperative​.

These reliefs are intended to encourage the productive use of property and support sectors like housing and development, which are vital to the UK’s infrastructure and social services but to claim any of these reliefs, businesses must apply through the ATED online service and meet specific conditions set out in the HMRC guidance​.

We can help you with this, including the application process and determining whether or not you are eligible for reliefs.

Further, if you are looking to reduce your liabilities in other areas of your business, we are experts in tax planning and mitigation.

For more information on ATED, or for help reducing your liabilities, please get in touch.