HMRC Is Writing To Companies About ATED Valuations

Once again, HMRC has started a letter-writing campaign, this time contacting taxpayers registered for the Annual Tax on Enveloped Dwellings, alerting them to a valuation trap and possible penalties ...

An enveloped dwelling is owned (or enveloped) within a corporate wrapper. If UK residential property is held by a company it must be valued on acquisition which determines if it would be subject to the Annual Tax on Enveloped Dwellings (ATED) charge.

"If so, an annual ATED return is required!"

This was introduced in April 2013 and, at that time, the lowest-value property the charge could apply to was £2m. It was reduced to £1m in April 2015 and then to the current level of £500,000 in April 2016. This means that all properties falling into ATED must be revalued every five years.

Be warned that the ATED return for 2023/24 must be based on the value of the residential property on the 1st of April 2022. With property prices going up and up in the past few years, a number of residential properties that were below the ATED threshold may now be included and tax has become due.

"The average price of residential property has risen by 29% in the last five years!"

The good news is that the property valuation doesn't have to be super accurate. The owner just needs to know which ATED band it will fall into. If the valuation is within 10% of an ATED threshold, you can ask HMRC for a free Pre-Return Branding Check, however, it may take up to 30-days for them to reply, so apply in plenty of time before the ATED charge is due.

I believe HMRC is right in warning taxpayers about the effects of residential property valuation rises on ATED liabilities. Owners may not be aware of the risk of falling into the ATED scheme!

Remember, there are reliefs and exemptions to ATED so it's worthwhile talking to a tax advisor like me to see if it will apply to you and your portfolio from the 1st of April 2023.


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