Companies subject to the Annual Tax on Enveloped Dwellings (ATED) will need to review before April 2018 whether the new 1 April 2017 ATED valuation date will place them into a different ATED band.

What is ATED?

The Annual Tax on Enveloped Dwellings (ATED) is an annual tax which applies to all companies (whether UK or not) holding UK residential property valued at over £500,000.

The ATED year runs from 1 April to 31 March and companies must file an ATED return by 30 April for each ATED year during which they hold a UK residential property. There are a number of helpful reliefs from the annual charge (the most common being property rental business relief) but the reliefs do not apply automatically – an ATED relief return must be submitted in order to claim them.

ATED bands for 2017/18

The ATED bands and chargeable amounts for the 2017/18 ATED year are set out in the below table:

Property value bands based on the last valuation date Annual chargeable amount for 2017 to 2018
More than £500,000 but not more than £1 million £3,500
More than £1 million but not more than £2 million £7,050
More than £2 million but not more than £5 million £23,550
More than £5 million but not more than £10 million £54,950
More than £10 million but not more than £20 million £110,100
More than £20 million £220,350

The annual chargeable amounts are usually increased in line with the previous September's Consumer Prices Index (CPI) although in 2015 the government unexpectedly decided to increase the annual chargeable amounts by a further 50%.

The property value bands are not index linked and so as time goes on more and more properties will come within ATED and become liable to larger annual charge amounts.

The 1 April valuation date

To prevent companies from having to obtain valuations each year the legislation sets out certain “valuation dates” which are relevant for determining a company's ATED position. It is the value of the property on the most recent of these valuation dates which is relevant for determining the annual chargeable amount due on the property.

The default position for ATED is that 1 April 2012 and each 1 April falling five years after 1 April 2012 (i.e. 1 April 2017, 1 April 2022, 1 April 2027 etc.) will be valuation dates for ATED. However, the new 1 April valuation date only applies for the following ATED year and the next four ATED years. So, the 1 April 2017 valuation date will apply for the 2018/19 ATED year and all ATED years up to and including the 2022/23 ATED year.

Action to take

It is up to taxpayers to decide whether to work out the valuation themselves or to employ a professional (e.g. an estate agent or surveyor) to provide a valuation for them. In certain instances a decision may be taken that a new valuation is not needed – for instance if the property currently qualifies for a relief and it is expected to qualify for a relief throughout the entire ownership period.

However, it would seem sensible to consider the point further if substantial works have been carried out on the property since it was last valued, if the property’s current ATED value is near an ATED band threshold or if when the property was last valued it was below £500,000. Where it is believed that the property value is only just below a band threshold we would always recommend that an independent professional valuation is obtained.

If the property valuation is within 10% of an ATED band threshold then it is also possible to submit a pre-return banding check to HMRC to ask them to confirm that they agree with the ATED band you think the property falls within. Any such check in relation to the 1 April 2017 value should be submitted well before April 2018 to give HMRC time to respond.

Other valuation dates

In addition to the 1 April valuation dates it is important for taxpayers to remember that two other events will also trigger a re-valuation for ATED purposes and that it is the most recent valuation date which is relevant for ATED purposes.

The other ATED valuation dates are:

1. The effective date of any substantial acquisition of a dwelling

If a company acquires an interest in land then the value of that interest on the date of acquisition will also be a valuation date for ATED purposes. The most common instance of this is where a company buys a new property and in that instance (assuming it is an arm’s length purchase) the purchase price will be the relevant value for determining which ATED band the property is in. However, this also applies to any purchase of a further property interest which is valued at £40,000 or more in relation to a property. For instance, if more than £40,000 is paid for a lease extension for a property then this would trigger a new valuation date for that property.

It is only an acquisition of a right in or over land which is relevant and so millions could be spent developing a property without triggering a new valuation date under this provision. However, obviously the expenditure could result in the property being put into a higher ATED band when the next 1 April valuation date arises.

2. The effective date of any substantial disposal of part of a dwelling

If a company disposes of part of a property for more than £40,000 then this will also trigger a new valuation date. Again, this requires a disposal of a right in or over land. Although it is likely that in most circumstances this will result in a lower valuation for ATED purposes it is not difficult to imagine a scenario which would result in an increased valuation. For instance, if a large country estate is developed at considerable expense after acquisition and following the development the company decides to sell a small parcel of land on the estate to an adjacent landowner then this relatively low value deal could result in a much larger ATED liability for the company.