Introduction
In September 2022, HMRC launched a new campaign targeting non-tax compliance of offshore companies owning UK property. The campaign coincides with a 2022 requirement for overseas entities that own UK property to register with Companies House by 31 January 2023.
The 31 January deadline is still a little way off, however, in the meantime, HMRC has reviewed data, including from the Land Registry, and has identified any companies not resident in the UK that hold UK property. HMRC suspects that these owners may not have fulfilled their UK tax obligations which includes paying UK tax on profits from letting out the property and gains made on disposal of the property.
HMRC are currently issuing “nudge letters” sometimes referred to as “one to many letters” to the companies it has identified so far.
What you need to know
There are two types of letter currently being issued by HMRC (see links below)
The first type – Disclosure for ATED & non-resident corporate landlord liabilities – letter – is being issued to non-resident companies that own UK property and may need to disclose income received as a non-resident corporate landlord or a liability to the Annual Tax on Enveloped Dwellings (ATED). In the letter HMRC recommends that connected UK resident individuals review their own tax position to ensure they are up to date. This may include consideration of the Transfer of Assets Abroad (ToAA) legislation and professional advice should be sought.
The other letter – Disposal by non-resident company of interest in UK residential property – letter – is being issued to non-resident companies that appear to have made a disposal of UK residential property between 6 April 2015 and 5 April 2019 without filing a Non-Resident Capital Gains Tax (NRCGT) return. Again, the letter suggests that any individual participators should seek professional advice to ensure their affairs are up to date.
What action should you take if you or your client receives a letter?
The letters include a “Certificate of Tax Position” and a “Notice of Intention to Disclose”.
Seek professional advice before signing and returning the Certificate. If you state that no disclosure is required and it is later discovered that this was not the case, HMRC may suggest fraudulent behaviour and dishonesty which could certainly lead to increased penalties and potentially criminal investigation.
For those needing to make a disclosure, the disclosure will be processed manually by HMRC and there are no online forms available for completion. The principles of disclosure align with the Worldwide Disclosure Facility, which many readers may be familiar with. However, it is disappointing that there is no option to make a disclosure electronically and we predict that this will lead to increased frustration and delay for taxpayers if they are not well supported by someone skilled at handling HMRC and, combatting delay.
While the letters are addressed to the companies, both letters recommend that the companies should ask connected UK-resident individuals to ensure their personal tax affairs are up to date. The recipient is asked to respond to the letter within 40 days. You may be surprised how quickly that time can elapse so any letter received should be acted upon as a priority.
The letters are not coming from HMRC’s Fraud Investigation Service, but they do mention tax fraud and the use of the Contractual Disclosure Facility. Should the Company Director(s) accept that they acted deliberately in failing to correctly declare income or gains, any disclosure should be handled carefully by a professional experienced in disclosing tax fraud to HMRC.
Failure to respond to a nudge letter will likely result in HMRC opening a formal enquiry, therefore we strongly recommend seeking specialist advice at the earliest opportunity.
For further details please contact Sarah Scala, Associate Partner and Head of Tax Dispute Resolution at sarah.scala@claritastax.co.uk or on 07940 463824.
