ATED Reliefs and Exemptions

If your company owns a residential property worth over £500,000, you may face the Annual Tax on Enveloped Dwellings (ATED). However, several reliefs can reduce your charge to nil, and certain organisations are exempt altogether. Understanding which reliefs apply to your situation could save you thousands of pounds each year.

What are ATED reliefs?

ATED reliefs allow you to reduce or completely eliminate your ATED liability if your property is used for specific qualifying purposes. Most reliefs reduce your charge to zero, meaning you won't pay any ATED for the relevant period.

Unlike exemptions, you must actively claim reliefs through HMRC's online system, even when your charge falls to nil.

Property rental businesses

The most commonly used relief applies to properties let to unconnected third parties on a commercial basis. This relief is available when your property is rented out commercially and is not occupied (or available for occupation) at any time by anyone connected with the company that owns it.

"Connected" means individuals or other companies linked to the property owner, such as shareholders, directors, their family members, or associated businesses. The property must be genuinely available to the open market.

From 1 April 2022, this relief continues to apply even if your property is used to house people under the Homes for Ukraine Sponsorship Scheme. This also extends to individuals who later transfer to the Ukraine Permission Extension Scheme.

Property developers and traders

Two separate reliefs exist for businesses in the property sector:

Property developers can claim relief when a residential property is being developed for resale. This applies during the active development period when work is underway to prepare the property for sale.

Property traders can claim relief when a dwelling forms part of the stock of their property trading business and is held solely for resale. This applies to companies whose business is buying and selling properties.

Both of these reliefs also continue to apply if the property temporarily houses participants in the Homes for Ukraine Sponsorship Scheme from 1 April 2022 onwards.

Employee accommodation

You can claim relief if your property is used by a trading business to provide living accommodation to certain qualifying employees. The accommodation must be genuinely required for business purposes and meet specific conditions about the type of employment and business use.

Farmhouses

Farmhouses qualify for relief when they are occupied by a farm worker or a former farm worker who has given long service. This recognises the traditional agricultural practice of providing accommodation to those working the land.

Other qualifying reliefs

Additional reliefs apply to:

• Properties open to the public for at least 28 days per year
• Properties repossessed by financial institutions through their lending business
• Properties acquired under a regulated home reversion plan
• Properties owned by registered providers of social housing or qualifying housing co-operatives

Each relief has specific conditions that must be met. You should review the detailed requirements in sections 30 to 41 of the ATED technical guidance before claiming.

How to claim relief

You must use HMRC's ATED online service to claim any relief. You cannot claim reliefs by phone or post.

Relief Declaration Returns

When your relief claim reduces your ATED charge to nil (which most reliefs do), you must submit a Relief Declaration Return through the online service. This is different from a standard ATED return.

Even though you owe no tax, this return is mandatory. It tells HMRC which relief you're claiming and confirms your property qualifies.

HMRC provides an online tool called "Check how to submit your ATED return" which guides you through:

• How and when to submit your relief return
• Solutions to common issues with the online service
• Whether you need to file a return at all

The tool asks simple questions about your circumstances and directs you to the correct filing method.

Exemptions: when you don't need to file

Exemptions are different from reliefs. If you meet the conditions for an exemption, you don't need to file any return with HMRC at all.

Key exemptions include:

Charitable companies using the dwelling for charitable purposes can be exempt, provided they meet all conditions set out in section 42 of the technical guidance. The property must genuinely further the charity's purposes.

Public bodies listed in section 43 of the technical guidance are exempt from ATED.

Bodies established for national purposes listed in section 44 of the technical guidance also qualify for exemption.

Because exemptions mean you don't file a return, it's important to be certain you meet all the conditions. If you're unsure whether you qualify for an exemption or should instead claim a relief, consult the technical guidance or seek professional advice.

Keeping your relief valid

ATED reliefs are claimed for specific chargeable periods (which run from 1 April to 31 March). If your circumstances change during the year and your property no longer qualifies for relief, you must notify HMRC and may become liable for ATED.

Review your relief claims annually to ensure your property still qualifies. Changes in how a property is used, who occupies it, or your business activities can all affect your relief entitlement.

Sources

• Annual Tax on Enveloped Dwellings: reliefs and exemptions
• Annual Tax on Enveloped Dwellings: technical guidance
• Register for the Annual Tax on Enveloped Dwellings online service

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.