Annual Tax on Enveloped Dwellings (ATED): Rates, Reliefs, and the Offshore Property Question

What Is ATED?

The Annual Tax on Enveloped Dwellings (ATED) is a UK tax on "high value residential property" held within a company, partnership with a corporate member, or collective investment scheme. It was introduced by Finance Act 2013 and applies from 1 April 2013 (extended to properties valued above £500,000 from 2016).

ATED is charged on each property within scope on an annual basis, at rates based on the property's current market value. It is entirely separate from council tax and income tax on rental income. The charge applies regardless of whether the property is occupied, rented, or vacant.

ATED Rates 2025/26

ATED charges are updated on 1 April each year. For the 2025/26 ATED year (1 April 2025 to 31 March 2026):

Property Value Band	Annual ATED Charge
More than £500,000 up to £1 million	£4,150
More than £1 million up to £2 million	£8,450
More than £2 million up to £5 million	£28,650
More than £5 million up to £10 million	£67,050
More than £10 million up to £20 million	£134,550
More than £20 million	£287,500

Properties are valued at their market value as at 1 April 2022 (the most recent valuation date), or at the date of acquisition if acquired after that date. Revaluation dates occur every five years.

ATED Reliefs: When the Charge Does Not Apply

The ATED charge is displaced entirely where a qualifying relief applies. The main reliefs are:

Property Rental Business Relief

Where the company lets the property to a third party on commercial terms, and does not permit the owner(s) or any person connected with the owner(s) to occupy it, the property qualifies for rental business relief. The relief eliminates the ATED charge entirely — but the company must still file an ATED return claiming the relief each year (the relief is not automatic).

This is the most commonly used relief and is the basis on which legitimate property companies own residential property corporately.

Property Development Relief

A property developer who holds residential property as trading stock, actively working to develop and sell it, can claim property development relief. The property must be acquired for development, not for investment or occupation.

Charitable Use Relief

Property owned by a charity and used for charitable purposes is exempt.

Others

Additional reliefs exist for open market properties held for commercial letting to the public (hotels, guest houses), property occupied by employees for business purposes, and farmhouses genuinely used for agricultural purposes.

ATED-Related Capital Gains Tax

Beyond the annual charge, a separate capital gains tax charge — the ATED-related CGT charge — applies to gains on the disposal of ATED-liable properties. ATED-related CGT is charged at 28% on the gain attributable to periods when the property was within ATED scope (not covered by a relief).

The ATED-related CGT charge is calculated separately from the standard Non-Resident CGT (NRCGT) charge on UK residential property. For a non-resident corporate owner of a property that is partly within ATED (some periods of owner occupation by connected persons) and partly within NRCGT, the calculation of the correct CGT charge requires a time-apportionment analysis.

The 15% SDLT Rate: Corporate Purchasers

Since 2014, companies purchasing UK residential property valued above £500,000 have been subject to a flat 15% SDLT rate (Stamp Duty Land Tax), rather than the standard residential SDLT rates (which reach only 12% at the highest band, plus applicable surcharges).

The 15% rate applies to the entire purchase price — not just the amount above £500,000. On a £2 million property, a company pays £300,000 SDLT at 15%, compared with an individual paying approximately £213,750 (at standard rates including the 3% second home surcharge). The additional SDLT cost for corporate purchase is approximately £86,000 in this example.

The 15% rate has a qualifying purpose: it was designed to end the practice of using offshore or domestic companies to own UK residential property as a method of avoiding SDLT on subsequent sales (selling the company shares rather than the property would not attract SDLT). Combined with the ATED charge and the ATED-related CGT, the 15% SDLT rate forms part of a comprehensive "de-enveloping" policy that has made corporate ownership of UK residential property financially unattractive for most purposes.

Tax	Individual Buyer	Corporate Buyer
SDLT on £2M property	~£213,750 (including 3% surcharge)	£300,000 (15% flat)
Annual property tax	Council tax (~£3,000-£5,000)	ATED £8,450-£28,650
CGT on disposal (non-resident)	24% (higher rate NRCGT)	ATED-related CGT at 28% + NRCGT

The Pre-2013 Offshore Company: De-Enveloping

Many properties were held in offshore company structures before 2013, established in an era when selling the company shares instead of the property avoided SDLT on the buyer side. Since 2013-2016 (when the ATED thresholds were progressively lowered), these structures have been economically penalised.

De-enveloping — transferring the property out of the company and into direct ownership — involves:

1. Stamp Duty Land Tax on de-enveloping: Transferring the property from the company to the individual shareholder is a SDLT event. However, HMRC provided a temporary SDLT relief specifically for de-enveloping transactions — this relief expired in 2017 and is no longer available. Any de-enveloping now triggers SDLT at the relevant rate for the property value.

2. Capital gains tax on de-enveloping: The transfer from company to shareholder is a disposal at market value for CGT purposes (the ATED-related CGT applies to the gain within the company).

3. Income tax: If the transfer from company to shareholder is a distribution, it may be treated as a dividend.

For high-value properties that have appreciated significantly since enveloping, the de-enveloping cost can be material. Whether de-enveloping makes economic sense requires a comparison of:

• Ongoing ATED charge (assuming no relief applies)
• SDLT and CGT cost of de-enveloping
• Future IHT impact of holding property inside vs outside a corporate structure

HPT Group advises property owners and investors on ATED compliance, qualifying relief claims, the de-enveloping decision, and the broader structure of UK property ownership for non-resident and UK-resident investors. Whether to hold UK residential property directly or corporately is a complex decision that has changed materially since 2013 — and the optimal structure varies by individual circumstances. For a property structure review, visit our UK property tax services page or contact our advisory team.