Have you received an HMRC nudge letter about filing ATED returns?

HMRC have an ongoing campaign to tackle non-compliance connected with offshore corporate entities owning UK property, and we are seeing an increase in this activity in 2024.

What is ATED?

The Annual Tax on Enveloped Dwellings (ATED) is an annual tax due where corporate entities – whether UK resident or not – own UK residential properties. Reliefs are available, for example if the property is let on a commercial basis, or if the building provides living accommodation to employees of a trading business, but whether the charge is due or not, a return must be filed annually between 1 and 30 April each year (or within 30 days of acquisition of the property).

If the ATED charge applies, for example where the property is left empty, or just for the use of the owner, then the ATED charge is based on the value of the property. Residential properties valued at £500,000 or more as of 1 April 2022, or the purchase date if later, fall within the scope of ATED.

Why have HMRC sent my business a letter?

HMRC possess information regarding ownership of UK properties and their values, which helps them determine who may need to file an ATED return, and whether the ATED returns submitted are correct.

If your company has received a letter from HMRC, it might be because they have a record that the entity owns a residential property valued over £500,000 and no ATED return has been received, or, that the return has been filed but HMRC hold conflicting information relating to the property’s value or use. In the case of the latter, it can be beneficial to obtain a formal valuation of the property and keep this on record in case of future challenge by HMRC.

What does a business need to do if it receives an ATED nudge letter?

Any letter received from HMRC should not be ignored. If you believe your filings have been made correctly, someone authorised by the business (e.g. a director, or an agent) should respond to HMRC outlining why they believe no additional liabilities are due.

If ATED returns should have been filed, or it transpires that they were filed using incorrect property values, then a disclosure may need to be made to HMRC.

If the corporate entity is based offshore, you should also review the letter to check if HMRC are asking about non-resident landlord obligations, and address these as necessary. For example, if the residential property is being let commercially such that the company can claim relief from the ATED charge, has the entity kept up with its UK corporation tax return obligations?

Making an ATED disclosure

If you did not realise you had ATED obligations on behalf of your company, or errors have been made in the returns, then a notification can be made to HMRC that the entity intends to make a disclosure under the Digital Disclosure Service.

A disclosure should then be prepared for all years that are within the scope of HMRC assessment. The disclosure will need to contain all relevant details relating to the property or properties, including address, acquisition date, the use of each property, details about letting the property, and if applicable any details of disposal and any associated capital gains/losses if these have also not been reported.

If ATED liabilities have been deliberately evaded, then you should consider whether the Contractual Disclosure Facility (Code of Practice 9 or “COP9”) may be more appropriate and seek guidance from a COP9 specialist, such as Menzies’ Tax Disputes and Disclosures team.

If you need support responding to HMRC, filing ATED returns, or making a disclosure on behalf of a company, contact the Menzies Tax Disputes and Disclosures team today.

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