UK: Tax authority focuses efforts on offshore corporates owning UK property.

As published on step.org/industry-news, Thursday 25 August, 2022.

In September 2022, the UK tax authority will launch a new campaign aimed at foreign corporates that may not have met UK tax obligations on UK property they own, the UK Chartered Institute of Taxation (CIOT) has said.

Her Majesty’s Revenue and Customs (HMRC) says it has reviewed data from HM Land Registry in England and Wales and other sources to identify companies who may need to make disclosures for the non-resident corporate rental income, the annual tax on enveloped dwellings (ATED), the transfer of assets abroad (ToAA) legislation, non-resident capital gains tax and income tax under the transactions in land rules.

Depending on the circumstances, these companies will receive letters, accompanied by a 'certificate of tax position', recommending that they ask connected UK-resident individuals to re-examine their personal tax affairs in the light of relevant anti-avoidance provisions. Since 2019, such certificates of tax position have been issued to UK residents who receive offshore income. They typically require a declaration of the recipients' offshore tax compliance position within 30 days. HMRC has previously noted that taxpayers are not legally obliged to return the certificate, which could expose them to criminal prosecution if they make an incorrect declaration. Standard advice to taxpayers is that they should consider very carefully whether to do so, whether they have irregularities to disclose or not.

One of the letters concerns undisclosed income received as a non-resident corporate landlord or a liability to the ATED. Under the ToAA legislation, UK-resident individuals who have any interest in the income or capital of a non-resident landlord, whether directly or indirectly, may be within the ToAA income charge provisions at s721 and s727 of the Income Tax Act 2007 (the 2007 Act). A UK resident who has not personally transferred assets but benefits from a transfer made by somebody else may be within the ToAA benefits charge at s731 of the 2007 Act. The letter recommends that any such individuals should seek professional advice to ensure their affairs are up-to-date.

An alternative letter will be sent 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. Disposals of UK residential property by non-resident companies were subject to NRCGT between 6 April 2015 and 5 April 2019. Where the company purchased the property before April 2015 and the whole of any overall gain is not charged to NRCGT, then that part of any gain not charged may be attributable to the participants in the company. Such corporates may also be liable to pay UK tax on rental profits, as well as income tax under the transactions in land rules and ATED.

The letters and certificates are not yet available, but the CIOT notes that both will suggest that any UK-resident individual participants in these companies should seek professional advice to ensure their affairs are up to date.

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