Offshore Corporate Property Owners Targeted by HMRC

HMRC has announced a new campaign for September 2022 which will see overseas property owners targeted.

More specifically, HMRC is seeking to get in touch with non-UK resident companies who own residential property in the UK in a bid to identify non-compliance.

The letters being sent out will ask offshore corporate property owners to check whether they have been compliant with the law in every aspect. HMRC will expect any errors, omissions or breaches to be self-reported as part of this campaign.

New Rules On Beneficial Owners

The latest campaign from HMRC to target offshore corporate property owners follows hot on the heels of a clampdown in the law on overseas beneficial owners.

With effect from 1 August 2022, any overseas entities which are UK property owners are obliged to register with Companies House. A deadline of 31 January 2023 has been set for all existing owners to register, with an ongoing responsibility to keep records up to date annually, as a minimum.

Registration will only be successful if the identities have been officially verified through an agent that is authorised, which Key Business Consultants are. Once registered, the information will be available publicly although sensitive data will be held back.

HMRC will use the registration data to carry out a number of checks, including cross-referring data with other information streams, such as that received from offshore banks. This will allow the tax body to identify whether individuals are UK resident for tax purposes, and if so, whether any tax is due.

One of the other checks that HMRC will make following registration is compliance with ATED: Annual Tax on Enveloped Dwellings. And this ties in with their campaign for September 2022, which focuses more specifically on ATED.

What is ATED?

The Annual Tax on Enveloped Dwellings (ATED) is an annual tax which is levied on UK dwellings which are owned by a company, with some exemptions. ATED does not cover individuals who own property in their personal capacity.

Unless any relief can be claimed, ATED will be applied to properties with a value of:

• 2013-2014 onwards: £2 million
• 2015-2016 onwards: £1 million
• 2016-2017 onwards: £500,000

In addition to the above, any offshore companies who own UK property must report rental income under the non-resident landlord scheme. Before April 2020, this rental income would have been subject to income tax. From April 2020 onwards, it has instead been subject to corporation tax.

The ATED due must be paid by 30 April every year, and an annual return must also be filed by the same date. A revaluation of the property for ATED must be carried out at least every five years. This five-year period can be reduced if certain transactions are carried out which trigger a requirement for a new valuation.

This annual charge is payable in advance, and increases with the value of the property.

HMRC Drive

HMRC has announced that it will be targeting offshore corporate property owners who own residential property in the UK. A series of so-called “nudge letters” will be sent out, with recipients expected to provide an honest response.

As described above, HMRC has access to an enormous amount of data from various sources which has enabled it to assimilate a database of taxpayers, including offshore entities who own UK property. A specialist department within HMRC - Risk and Intelligence Service, Offshore Unit - is focussing its attention on corporate entities who may not have complied with ATED and/or declared any rental income.

The letters being sent will ask companies to check whether they are compliant with ATED and also to check whether they have declared all of their rental income. Crucially, companies will be asked to check whether they are currently providing the correct information and also whether they have historically done so.

Nudge letters have been a very effective tool for HMRC, and they are being utilised once again in this latest campaign. It places the responsibility for the checks squarely on the recipient - in this case, the offshore company - and allows large numbers to be targeted simultaneously.

Content of Letters

HMRC will be sending out two separate letters to offshore companies, based on information held by the Land Registry. Both letters will include a Certificate of Tax Position.

The first letter will go to offshore companies that own UK property and may need to pay ATED and/or declare rental income. Crucially, individuals who have an interest in either the capital or income of a non-resident landlord may also have obligations, set out under the Transfer of Assets Abroad (ToAA). Anyone falling into this category should ensure they take legal and financial advice on their tax affairs.

The second letter will be sent to offshore companies who have disposed of residential property in the UK between April 2015 and April 2019 but have not yet filed a Non-Resident Capital Gains Tax (NRCGT) return. Properties disposed of between these dates would have been subject to NRCGT.

Both the letters will be sent to the corporate owner of the property but make it clear that all associated parties are included. This could include Trust beneficiaries or UK-based shareholders, as an example.

HMRC are asking property owners to complete the enclosed Certificate of Tax Position. This requires the party to review their historic affairs for compliance, sign and return the certificate to HMRC with the relevant information.

There is no requirement to complete the Certificate of Tax Position, but HMRC typically send out letters to individuals and entities where it suspects action is required. Ignoring the request is likely to result in further action from HMRC and a potential escalation.

HMRC has the power to levy hefty penalties for late filing, late payments or for any errors and omissions. The behaviour of the property owner can be taken into account when deciding the severity of the penalty, so it is imperative to take the request for information seriously, and to seek relevant expert advice on how to respond.