Annual tax on enveloped dwellings UK residential property

Overview Tax on enveloped dwellings:

The annual tax on enveloped dwellings is a tax in the United Kingdom. It is a tax levied on specific value high-value residential properties owned by companies, partnerships, or collective investment schemes. It is payable by companies that own a UK residential property valued at more than £500,000. It is introduced on 1st April 2013. It has certain reliefs and exemptions available.

This is a kind of property tax, which deals with reducing the enveloping of residential property into corporate structures through a fixed annual charge. This is based on property value. Your property is measured as dwelling if all or part of it is used or could potentially be used as a house or flat, or any place of dwelling. It is also having a look at the diverse types of properties and how those are valued, as this can occasionally make a dissimilarity.  

Following an announcement at Budget 2012 and subsequent consultation, legislation was introduced in the Finance Act 2013 to enforce an annual tax on enveloped dwellings. 

For the year ended 31 March 2018 and previous years, companies, partnerships with company members and collective investment schemes, fell within the regime if they held an interest in a UK residential property worth more than £500,000.

From the year ended 31 March 2019, the valuation date is 1 April 2017 (due to a revaluation date occurs every 5 years) thus any residential property interests held by the relevant entity in a year ended 31 March each year worth more than £500k at first April 2017 with fall within regime, and thus have to file a return with HM Revenue and Customs by 30 April in relevant year, or 30 days from the date of acquisition if required in a year.

The purpose of this tax is to discourage companies from holding residential property to avoid other property-related taxes, such as Stamp Duty Land Tax.

Who needs to pay?

This must be paid by the organization owing UK residential property valued at over £500,000. Here is a collapse of the full property standard:

• The property is classified as a dwelling (that is if all or part of it is used as a residence)
• The property is in the UK.
• The property is admired at over £500,000. 
• The property is owned (entirely or partially) by a company, partnership or collective investment scheme (such as a unit trust).

If relevant, companies must present an annual tax enveloped dwelling return by 30 April each year, with the tax charge billed annually in advance. 

Property exempt from enveloped dwelling:

This pertains to property and depends on whether it meets the meaning of dwelling. HMRC describes a dwelling as property used completely or partially as a residence. However, some property outlines house people type house people who are not confidential as dwellings and are therefore not spotlight to ATED. These include:

• Hotels
• Boarding school accommodation
• Hospitals 
• Military accommodation
• Care homes 
• Prisons
• Guest houses
• Student halls

How it is calculated?

The tax charge is based upon the taxable value of the property, with properties valued between £500k-£1m being subjected to a £4,400 tax charge, which increases to £287,500 for property values exceeding £20m.

Chargeable amount (from 1st April 2024)

Value of Property Annual Charges

£500,000 – £1,000,000 £4,400

£1,000,000 – £2,000,000 £9,000

£2,000,000 – £5,000,000 £30,550

£5,000,000 – £10,000,000 £71,500

£10,000,000 – £20,000,000 £143,500

£20,000,000+ £287,500

Penalties:

If a company remain unsuccessful in convening its annual tax-enveloped dwelling obligations, it could be penalized by HMRC. Principally, issues resulting in penalties will reduce:

• Failure to file your return before the deadline
• Failure to pay the taxes owed on time 
• Submitting an accurate return

Organizations can petition HMRC if they oppose their penalty decision. To do this, they should write to HMRC within 30 days of the decision date. 

For organizations that own several high-value residential properties, dwelling can become quite complex. Furthermore, the potential penalties for improper submission of returns can be steep. That is why we suggest companies with important residential property holdings speak to a qualified business tax advisor to make sure everything runs efficiently year to year. 

Reliefs:

There are a number of reliefs from tax on enveloped dwellings that can be claimed via a relief declaration return these include the following:

• Property rental business properties are let at a commercial rate to independent unconnected tenants (i.e. no one connected to the company directors or shareholders. 
• Dwelling unties to the public for at least 28 days a year.
• Properties are being developed for resale by a property developer.
• Property held as trading stock for the sole purpose of resale by a property trader. 
• Property held by financial institutions as a result of repossession as a result of its money lending business. 
• Properties worn by a trading business to offer living accommodations to certain qualified employees.
• A farmhouse engaged by a farm employee or a former long-serving farm worker. 
• Properties owned by a registered provider of social housing. 

Claims:

The annual tax on enveloped dwelling annual charges is accessed via a self-assessed return. An application form is available on the HMRC website enabling taxpayers to apply for a pre-return banding check to determine which band a property falls into. 

The return and payments under the annual tax on enveloped dwelling regime are due by 30, April at the beginning of the return period each year. A return has to be made for each dwelling where any liability is due. When dwellings are acquired, the return and payments will be due within 30 days. If the dwelling is newly built, the return and payment must be made within 90 days. 

Where an annual charge does not arise due to the availability of an exemption for a chargeable period, it is still necessary to file a return and claim the exemption. The exemption is claimed by completing and submitting a relief declaration return. The filing date for required returns and the payment of any annual charge required is 30th April.

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