What is an NNP?
Before we look at changes to ATED in more detail, it is essential to recognise the definition of an NNP. This description covers numerous bodies, such as:-
- A company
- A partnership (with a corporate partner)
- A collective investment scheme
- Trusts
Anybody holding property in their own right will not be liable for ATED.
What is the purpose of ATED?
Introduced on 1 April 2012, ATED is an annual tax targeting UK residential properties owned by NNPs. All properties valued up to £500,000 are exempt from the tax with a sliding scale on those valued upwards of £500,000. Initially, when the scheme was introduced, properties valued at up to £2 million were exempt from the tax. However, in 2015 the exemption was reduced to £1 million and then down to £500,000 in 2016.
While income tax bands tend to increase in line with inflation, this has not been the case for the ATED thresholds. Since inception, they have remained unchanged at:-
| Property value for ATED |
| Up to £500,000 (exempt from ATED) |
| £500,000 – £1 million |
| £1m – £2m |
| £2m – £5m |
| £5m – £10m |
| £10m – £20m |
| £20m + |
As you might have guessed, while the ATED tax bands have remained rigid, annual tax charges have increased year of year in line with inflation. The following table gives you an idea of the long-term impact:-
| Property value | Start date | Start Rate | 2023 rate | Overall increase |
| Up to £500,000 | n/a | n/a | n/a | n/a |
| £500,000 – £1 million | April 2016 | £3500 | £4150 | +19% |
| £1m – £2m | April 2015 | £7000 | £8450 | +21% |
| £2m – £5m | April 2013 | £15,000 | £28,650 | +91% |
| £5m – £10m | April 2013 | £35,000 | £67,050 | +92% |
| £10m – £20m | April 2013 | £70,000 | £134,550 | +92% |
| £20m + | April 2013 | £140,000 | £269,450 | +92% |
Some of the early tax charges have increased significantly over time!
Changes to ATED going forward
Those properties acquired by an NNP before the introduction of ATED in April 2012 would have been revalued as of 1 April 2012. Since its inception, the idea was to revalue all NNP-held properties every five years.
The 2012 valuation would dictate ATED liabilities for the subsequent five tax periods, 2013/14 up to 2017/18. On 1 April 2017, all NNP-held properties were again revalued, with the new figure used to calculate tax payments for the five years from 2018/19. Any potential ATED liability on properties acquired between valuation dates would be based on the purchase price, prior to the next wholesale revaluation.
Currently, ATED charges cover the period from 1 April to 31 March and are paid in advance by the end of April. In the last budget, the Chancellor confirmed the new valuation point for properties held by NNPs and increased tax charges in line with (high) inflation. As a result, all properties will now be revalued as of 1 April 2022, with this figure used as a base to calculate any ATED for the five periods starting in 2023/24. On a side note, if part of an ATED qualifying dwelling is sold for more than £40,000, this will trigger a revaluation for ATED purposes.
What is classified as a dwelling?
Dwellings are best described as properties where all or parts are/could be used for residents. This will take in houses and flats, and the valuation will also include gardens, grounds and additional buildings. It is important to note that the valuation is not just based on the residential building itself when part of a more extensive development.
Specific residential properties are exempt, undeveloped land is only subject to ATED in certain circumstances, but residential properties under construction, or those adapted as residences, will be subject to the ATED criteria.
Are there any exemptions from ATED?
While technically, they are built to house people; several properties are not considered dwellings for ATED purposes. These include:-
- Prisons
- Care homes
- Halls of residence
- Military accommodation
- Hotels
- Boarding schools
- Hospitals
- Guesthouses
It is vital to take advice if unsure whether an NNP held property should be classed as a dwelling. In some situations, relief may be available to reduce your ATED or bring it down to nil.
Submitting your ATED return and taxes
All ATED submissions are made using the HMRC online service, with many people using their accountants to calculate potential ATED liabilities. Your return (and any taxes due) should be submitted before the end of April during the taxable period. Late or inaccurate submissions will likely attract penalties. This is where the value of your accountant comes in!
Statistics about ATED
The UK government has compiled a list of interesting statistics about ATED, which may surprise many people. For example:-
- ATED receipts have fallen each year during the period 2015/16 up to 2020/21
- 2020/21 receipts came in at £111 million (a fall of 13% on the previous year)
- ATED income decreased in all bands except for the £500,000 – £1 million range
- 85% of total ATED receipts in 2020/21 came from London, dominated by the boroughs of Westminster and Kensington and Chelsea
Yet again, London dominates the UK property market!
Summary
Property price movements before, during and in the aftermath of Covid have been mixed in different areas of the country. The heavy dependence on London dwellings, and challenging market conditions, may explain the short-term fall in ATED receipts. However, in the long term, the value of dwellings tends to rise; therefore, the rigid ATED tax bands will draw more properties into the tax threshold each year.
Conversely, as mentioned above, individual tax band charges increase in line with inflation, with a significant rise this year. As a consequence of the revaluation and an across-the-board increase in tax rates, ATED income will likely rise in the short term. Yet again, the Chancellor has done no favours for NNPs holding dwellings which fall under the ATED criteria