Campaign: Offshore companies owning UK Property

HMRC have launched a new campaign to tackle non-compliance linked to offshore corporates owning UK property.

The Chartered Institute of Taxation (CIOT) first mentioned this in September 2022 and the campaign began in November 2022.

Offshore companies and their owners should review their tax affairs and if necessary correct their position, in order to minimise potential tax penalties. Penalties for offshore tax offences are often much higher than for domestic ones.

HMRC have identified non-resident corporate owners of UK property from Land Registry and other data who are suspected of not meeting their UK tax obligations. Tax obligations may include the requirements to report:

• Property income
• Annual Tax on Enveloped Dwellings (ATED)
• Transfer of assets abroad
• Non-resident Capital Gains Tax on property disposals

HMRC is expected to issue one of two letters, accompanied by a Certificate of Tax Position to companies which will also recommend that the companies should ask connected UK-resident individuals to ensure their personal tax affairs are up to date in respect of the related anti-avoidance provisions:

• Letter one: will be 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). Under the Transfer of Assets Abroad (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 s.721 and s.727 ITA 2007. A UK resident who has not personally transferred assets but benefits from a transfer made by somebody else (e.g., occupation of property) may be within the ToAA benefits charge at s.731 ITA 2007. The letter recommends that any such individuals should seek professional advice to ensure their affairs are up to date. 
  
  
• Letter two: will be 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. Between 6 April 2015 and 5 April 2019, disposals of UK residential property by non-resident companies were subject to NRCGT.  Where the company purchased the property before April 2015 and the whole of any overall gain is not charged to NRCGT (or otherwise), then that part of any gain not charged may be attributable to the participators in the company under s.13 TCGA 1992 (these rules have since been relocated to s.3 TCGA 1992). Additionally, such corporates may also be liable to pay UK tax on rental profits, Income Tax under the transactions in land rules and/or ATED. Again, the letter suggests that any individual participants should seek professional advice to ensure their affairs are up to date. 

Further details will be available from HMRC in due course.

Don't forget to register!

Offshore Entities have also a new duty to register details of the entity and its owners on Companies House new Register of Overseas Interests. 

The Register of Overseas Entities launched on 1 August 2022. Overseas entities who own, buy, sell, or transfer property or land in the UK are required to register with Companies House to:

• Provide details of their registrable beneficial owners or managing officers.
• Meet annual compliance obligations which require this information to be kept up to date.

Existing owners or recent sellers were required to notify their details on the register on or before 31 January 2023.

See Register of Overseas Entities

Tax penalties for offshore matters

Enhanced levels of tax penalties apply for:

• Errors in a return or document.
• Failure to notify liability or chargeability to tax.
• Failure to make a return on time.

The provisions were introduced by s.35 and Sch 10 FA 2010 and were extended to IHT and trusts by Sch 20 and 21 FA 2015.

Penalties are applied to different categories of domestic and offshore income.

It is important to note that reductions for penalties are available for disclosure and cooperation, including whether a disclosure was prompted or unprompted.

See Penalties: Offshore Income, CGT & IHT

Useful guides on these topics

Non-resident landlords and offshore investors index
What taxes are relevant for non-resident property investors?  What are the reporting requirements for non-resident investors? A Freeview signpost to our non-resident landlords and offshore investor tax guides.

Non-Resident Landlord scheme
What is the Non-Resident Landlord scheme? How does it work? Who does it apply to? How can I apply to receive rent without a withholding tax deduction?

Annual Tax on Enveloped Dwellings (ATED)
What is the Annual Tax on Enveloped Dwellings (ATED)? Who does ATED apply to? What relief is available and how is it claimed? What are the ATED return filing dates?

Transfer of assets abroad (ToA)
What are the ToA rules? When do they apply? Is there any defence against the rules?

Non-resident CGT: UK property
How and when does Capital Gains Tax apply to non-residents owning UK property?

External links

Source: CIOT News