If you’ve received a letter from HMRC about the Annual Tax on Enveloped Dwellings (ATED), you might be wondering what it means and what action you need to take. ATED applies to companies, partnerships with corporate members, and certain collective investment schemes that own UK residential property worth over £500,000. The recent wave of letters is part of HMRC’s effort to ensure that all liable entities are correctly registered and compliant.
Why have you received this letter?
HMRC regularly reviews property ownership records and identifies companies that may be subject to ATED. If your company owns residential property valued above the threshold, even if you believe an exemption applies, HMRC wants you to confirm your position. Ignoring the letter could lead to penalties, so it’s important to assess whether you need to submit a return.
Do you need to pay ATED?
The amount payable depends on the value of the property and follows a banded system. For the 2024-25 tax year, charges start at £3,800 for properties valued between £500,000 and £1 million, increasing significantly for higher-value properties. Even if you do not owe any tax, you may still need to file an ATED return to claim relief.
Exemptions and reliefs
Many companies will not actually have to pay ATED because they qualify for relief. Common exemptions include:
- Properties used for commercial letting to third parties
- Residential properties open to the public (e.g., historic houses)
- Properties being redeveloped for resale
- Dwellings used by employees as part of their job
If your property qualifies for relief, you must still submit a relief declaration return to avoid being assessed for ATED liability.
Next steps if you receive a letter
- Determine whether ATED applies. Review the property’s ownership structure and value. If the property is worth more than £500,000, check whether an exemption or relief applies.
- File an ATED return if required. The deadline for ATED returns is 30 April each year, covering the upcoming tax year. If ATED applies, you must calculate and pay the relevant charge by this date.
- Claim relief where applicable. If your property qualifies for relief, submit a relief declaration return to avoid unnecessary tax charges.
Seek professional advice if unsure. ATED rules can be complex, especially when determining whether relief applies. Speaking to a tax specialist can help ensure compliance and avoid penalties.
Consequences of not responding
Failing to respond to HMRC’s letter or missing an ATED return deadline can result in penalties, even if no tax is due. Late filing penalties start at £100 and increase over time, while interest is charged on unpaid tax. If HMRC later determines that ATED was due and not paid, additional penalties could be imposed.
How to challenge an ATED charge
If you believe HMRC has incorrectly assessed your company for ATED, you can challenge the charge by providing evidence of your exemption or relief entitlement. This may involve submitting documentation proving commercial use, redevelopment plans, or employee occupation. Acting quickly can prevent unnecessary tax charges and penalties.
Final thoughts
Receiving an HMRC letter about ATED can be concerning, but in many cases, it is simply a request for clarification. The key is to assess your liability, file the necessary returns, and claim any relief you’re entitled to. If you’re unsure, professional advice can help ensure you remain compliant and avoid unnecessary costs.
If you need help understanding your ATED obligations or require assistance with filing, get in touch with Tax Partner Nikhil Oza, who can guide you through the process.
