Has your non-resident company received letter from HMRC asking you to disclose your tax affairs related to UK land and properties? Such letters intend to alert overseas corporate taxpayers.
HMRC has a history of using a series of letters to prompt taxpayers to double check and confirm their tax affairs. And this time it is the offshore corporates owning UK Property being chased.
Sample Letter of Disposal of Interest in UK Residential Property
Disposing of an interest in UK residential property is subject to a variety of taxes, depending on the circumstances.
For example, individuals, partnerships, trustees of settlements and close companies may be subject to capital gains tax upon the sale of a UK residential property interest. Additionally, investors in deemed companies are treated as shareholders for the purposes of linking to an indirect disposal.
Non-UK residents disposing of UK immovable property are also subject to UK tax.
Furthermore, taxes such as stamp duty land tax and inheritance tax may apply when acquiring or disposing of UK residential property.
Who are Receiving HMRC Nudge Letters?
The following overseas companies are being sent these letters:
- Who own residential property in the UK and has disposed of interest on UK residential property, or
- Who need to disclose any unpaid UK tax liabilities related to UK residential property.
HMRC is sending these letters to double confirm the compliance for those who have already complied with necessary UK tax liabilities as well as for those who have not declared the same.
The letters are addressed to the non-resident company but also recommend that any connected UK-resident individual should update their personal tax affairs.
What Kind of Letters do HMRC Send?
Non-resident companies owning residential properties in the UK might be liable for different taxes like ATED, tax on rental income and tax on gain from property disposal. Depending on types of tax, HMRC sends two letters:
01
A letter asking for disclosure on “Disposal of Interest in UK Residential Property”
HMRC sends this letter to companies whom they believe to have sold their UK residential properties.
02
A letter asking for disclosure on “Annual Tax on Enveloped Dwellings and rental income”
HMRC sends this letter to companies whom they believe to own residential property above the ATED threshold.
You might receive only one of the two letters or both depending on the nature of transactions related to UK property.
How Should You Respond to HMRC Nudge Letters?
The way you need to respond to these letters depends on your actual status regarding your UK tax matters.
01
If UK tax affairs are up to date
If you have correctly reported all information about rental income from UK property, ATED charges, property disposal etc, you just need to declare that your tax affairs are up to date, and no further disclosure is required. You should use a form enclosed in the letter itself named- Certificate of Tax Position.
02
If UK tax affairs are not up to date
If you have omitted to report any information related to UK property or have incurred mistakes while reporting, you need to confirm the same in Certificate of Tax Position. Additionally, you need to sign another form mentioning the kind of disclosure you are making. This form is called Notice of Intention.
What Should be Disclosed?
There are different kind of information to be disclosed:
01
Rental Income – You need to disclose below information on rental income:
- Unpaid [simple_tooltip content=’Before 6 April 2020, income tax @20% was payable on rental income from UK properties by overseas companies. Post 6 April 2020, corporation tax ( 19% until March 2023 and 25% onwards April 2023) is payable by companies on rental income from UK property’]income tax[/simple_tooltip] on rental income from UK Property for period before 6 April 2020
- Unpaid [simple_tooltip content=’Before 6 April 2019, “Non-Resident Capital Gains Tax” was applicable on disposal of UK property. From 6 April 2019, non-resident companies would have to pay corporation tax on disposal of UK property. They are required to register as Non-resident companies with HMRC and make corporate tax return. ‘]corporation tax[/simple_tooltip] on rental income from UK property for period on or after 6 April 2020
02
Capital Gains – You need to disclose below information if you have sold your property:
- Non-Resident Capital Gains Tax (NRCGT) if disposal made between 6 April 2015 and 5 April 2019
- Unpaid [simple_tooltip content=’Before 6 April 2019, NRCGT was applicable on disposal of UK property. From 6 April 2019, non-resident companies would have to pay corporation tax on disposal of UK property. They are required to register as Non-resident companies with HMRC and make corporate tax return. ‘]corporation tax[/simple_tooltip] on disposal made after 5 April 2019
03
Annual tax on enveloped dwelling – If your company owns a residential property of value more than ATED threshold (£500,000 for year 2022/23), you need to disclose about ATED. Please refer to our article for further information on ATED
When Should Responses be Submitted?
The deadline for sending your response in 40 days from issue of the letter by HMRC.
Ever Wondered, How does HMRC Know What they Know?
HMRC has access to large amount of data and information from various sources. Examining such data, they identify the ones whose tax obligations might not have been met tax return and disclosures might be due.
A specialist department within HMRC – “Risk and Intelligence Service, Offshore Unit” focuses on corporate entities who may not have complied with UK tax obligations.
What are the Consequences of Ignoring the Letter?
The letters simply ask you to disclose more information. If you do not disclose and HMRC finds out errors by themselves, they charge heavy penalty. Whereas, if you disclose errors by yourselves, the rate of penalty is reduced.
We strictly advise these letters should not be ignored and appropriate action must be taken. Failure to respond properly might trigger an enquiry or investigation by HMRC. Further, false statements might lead to criminal proceedings. Hence, you should take this letter seriously and seek expert advice.
Conclusion
In short, HMRC wants the company to disclose any unpaid UK taxes arising from UK property that the company was subject to.
