HMRC launches a campaign focused on offshore companies owning UK property

Two new batches of nudge letters will be sent out from November 2022. These are intended to prompt a review of any potential non-compliance and encourage recipients to make a disclosure to HMRC where any unpaid UK tax liabilities are identified.

Why is HMRC targeting offshore companies that own UK property?

HMRC suspects that not all offshore companies are playing by the rules. HMRC has access to a vast amount of information including the Land Registry. This information has been checked against HMRC’s systems to try to identify offshore companies that may have not paid the correct amount of UK tax.

Letter 1: Offshore companies that currently own UK property

The first nudge letter primarily relates to the annual tax on enveloped dwellings (ATED). ATED is a tax which is paid annually by ‘non-natural persons’, such as companies, that own UK residential property with a value exceeding £500,000. Not all overseas companies owning UK property will need to pay the charge as there are specific conditions, reliefs and exemptions which may apply.

When a company first comes in scope for ATED, it must submit a return to HMRC within 30 days of purchasing the property. It must then submit an annual return to HMRC by 30 April. These filing requirements apply even if no tax is payable. Penalties can apply for late filing or payment.

Where errors have been made in returns, HMRC can charge tax-geared penalties, however these are typically lower where a voluntary disclosure is made to HMRC.

This letter could also be sent if the UK property has been let out on a commercial basis. While ATED may not be payable, filing requirements remain. Rental income received by non-resident landlords also remains subject to UK tax as the income is derived from a UK source.

Letter 2: Non-resident capital gains tax

The second letter is targeted at companies who have sold UK property and have not filed a non-resident capital gains tax or corporation tax return.

Where returns have not been filed, HMRC may charge late filing penalties and late payment penalties in addition to the tax and interest due.

Recipients of the second letter should be wary that HMRC has included a form of ‘catch-all’ suggesting that the company may need to consider any other tax that may have been due in the past. As a non-exhaustive list, HMRC suggests the company might consider any liabilities arising from:

1. Rents
2. ATED
3. ATED related capital gains tax
4. The transactions in land anti-avoidance rules
5. Trading in or developing UK land

How should I respond if I receive one of these letters from HMRC?

It is important to take these letters seriously and respond within a reasonable timeframe to HMRC, whether you need to make a disclosure or believe your tax affairs are up to date.

HMRC includes a ‘Certificate of Tax Position’ with the letter which it asks the taxpayer to complete and return to HMRC. Taxpayers should be very careful when deciding how to approach this request as incorrect statements may be viewed by HMRC as false declarations, which can be subject to criminal prosecution in the most serious cases.

Professional advice should be sought before responding to HMRC.

How we can help

The areas of UK tax covered by this HMRC campaign are complex and wide-ranging.

Our Tax Dispute Resolution team, real estate and international tax specialists can assist with a review of the company’s past UK tax position and assist with any disclosures required to HMRC. We will liaise directly with HMRC on your behalf and agree settlement of any tax, interest and penalties due.

We can also provide advice on your property holding structures and assist you with future compliance obligations.

If you would like to find out more, please get in touch for a free, no obligation discussion with either:

Clare Halligan- Clare.Halligan@evelyn.com 

Dominic Arnold- Dominic.Arnold@evelyn.com 

Dom Hall- Dominic.Hall@evelyn.com