ATED applies to certain residential properties owned, completely or partly, by a company, a partnership where one of the partners is a company, or a collective investment vehicle, e.g. a unit trust or open ended investment company.
The tax originally applied to properties worth more than £2 million but is gradually being extended to lower value homes. Since April 2015, ATED has been levied on properties worth more than £1 million and from April 2016 it will apply to those in excess of £500,000. The amount of ATED payable is based on the property value.
Tax relief is available in a range of circumstances – including where the property is let on a commercial basis, used for employee accommodation or is a farmhouse occupied by a farm worker. The relief is not awarded automatically and must be claimed via the ATED return. There are also some exemptions, including where charitable companies use the building for charitable purposes.
The continuing extension of ATED and changes to other property-related tax – including the introduction of capital gains tax for non-UK residents on UK property – means that anyone holding residential property in a company needs to assess whether it is financially efficient to continue paying ATED or if, in view of taxes applied and associated costs, they prefer to unwind these structures.