Incorporated farm business? Don’t be caught out by ATED

Apr 25, 2023

The low corporation tax rate of recent years has seen many farms convert from the traditional sole trader or partnership arrangements to limited companies. 

This is generally beneficial, but it does come with an entirely different set of tax rules which often cause confusion to the newly converted.  

One area that seems to be particularly misunderstood relates to the Annual Tax on Enveloped Dwellings (ATED) which was introduced in 2013. This states that all companies owning residential property worth more than £500,000 in the UK will face an extra tax burden.  

With house prices rising rapidly, particularly in the more desirable rural areas, many farm businesses with a farmhouse are becoming subject to this little-known tax, which may come as a shock to the farmer.  

Property must be a dwelling 

To qualify for ATED, the property must qualify as a dwelling. According to the Government, this means the property could be partly or wholly used as a residence and includes buildings such as flats, houses, bungalows, and cottages, along with any gardens, grounds, and buildings that make up the full plot.  

It does not include buildings such as hotels, guest houses, halls of residence, military accommodation, care homes or prisons.  

Properties are revalued every five years with the last valuation taking place on April 1st, 2022, to establish the level that ATED should be charged at for the 2023 tax return.  

Tax relief for farmhouses 

However, the good news is that many farmers will qualify for relief from ATED. This is because relief can be claimed for occupation of a farmhouse as long as certain conditions are met.  

These conditions include that the occupant is a director or employee of the incorporated farming company (or partnership where one of the partners is a company or collective investment scheme such as a unit trust) and that their day-to-day occupation is primarily the trade of farming.  

A final condition is that the farmhouse must be located on the land used for the trade of farming by the farming business. 

Whitley Stimpson Director and farming expert Ian Parker said newly incorporated farm businesses need to assess the impact of ATED and review whether or not they are fulfilling the conditions required to qualify for relief.  

He said:

“Whereas many farm businesses will quality for 100% relief from ATED, it cannot be assumed that they meet all the criteria necessary. If this is the case, they could end up with a large and unexpected tax bill. This is a particular concern for farming business that have recently become incorporated and don’t fully understand ATED and how it relates to their business. If in doubt, we would encourage everyone to seek professional advice on this matter as this will undoubtedly help farmers save a significant amount of tax.” 

For more information about ATED and claiming tax relief, get in touch on (01295) 270200 or email 

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