In Foreign National v HMRC  TC8835, a non-resident and non-domiciled individual was unsuccessful in his attempt to prevent HMRC from gaining access to his UK bank statements. He was unable to explain certain property ownership and transactions and may have been trading in UK property.
FN had owned four properties in the UK.
- One bought with his daughter for £320,000 in November 2009 and was said to have been rented from November 2010.
- One bought with his wife for £490,000 in October 2009 and disposed of in May 2014 for £690,000.
- One bought with FN’s son-in-law in August 2010 for £495,000.
- A further one, 'JKL Court' was bought for £780,000 in October 2014 and disposed of in May 2015 for £1,325,000. The refurbishment on the property was carried out by 'Company Y'.
In early 2018 he submitted a Non-Resident Landlord form NR1 applying to receive rental income without deduction of tax
Concerned that rental income and property disposals had not been reported, HMRC issued notices to file Self Assessment returns for 2014-15 to 2016-17.
Following correspondence with the tax agent and receipt of rental schedules, HMRC had suspicions that JKL Court met numerous ‘Badges of Trade’ and could be considered Property trading.
Subsequently, HMRC opened enquiries into the 2014/15, 2015/16 and 2016/17 tax returns under Section 9A Taxes Management Act 1970.
HMRC made a jeopardy assessment for 2015-16.
Following resistance from the taxpayer in answering its queries, HMRC was still concerned as to whether the taxpayer had misreported the number of days that he had spent in the UK and also wished to understand who were the actual owners and recipients of the rental income, also whether FN was actually Dealing in and developing UK land.
HMRC issued a Schedule 36 Information Notice, requiring details of all bank and credit card accounts operated reporting all UK accounts in existence during the 2015-16 period together with sight of his UK bank and credit card account statements covering the 2015-16 period including providing sight of any chequebook and paying-in book foils relevant to the period.
The taxpayer Appealed to the First Tier Tribunal.
- The parties agreed before the hearing that the taxpayer was a non-resident.
The FTT reviewed the parties' arguments:
HMRC’s officer in evidence stated that it was 'essential' that he makes a holistic examination of all the financial records relating to JKL Court in order to have a full picture of the background about how the property transaction was managed and organised:
- A connected company (Company Y) invoiced over £110,000 of refurbishment costs relating to JKL Court and he needed to know if these costs were wholly and exclusively incurred.
- If it is decided from the facts that FN was trading, then there is an Income Tax charge on profits from the non-resident’s trade carried on wholly or partly in the UK
- Alternatively, a charge to Non-resident CGT could be due.
The taxpayer’s representative tried to argue that a Sch 36 notice was invalid following the issue of a jeopardy assessment. A jeopardy amendment is made if there is reason to believe that the subsequent settlement of the additional liability may be in jeopardy. The FTT noted that no Closure Notice had been given and HMRC’s investigation was still open.
The FTT found that HMRC’s information request was reasonably required. It agreed to anonymise the decision to protect FN from any adverse action from his home country.
The appeal was dismissed.
Useful guides on this topic
Non-Residents' Tax Toolkit
This toolkit covers the key UK tax issues for non-UK resident individuals holding UK assets and property and working in the UK.
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?
SRT: Statutory Residence test
What is the statutory residency test? Why is it important and how does it work?
SRT: Statutory Residence Test Toolkit
Our freeview interactive tool to determine 'At a glance' whether you are UK resident or not in a tax year.
Non-Domicile & the Remittance Basis: At a glance
What is Domicile? Does it have tax advantages? What is the Remittance Basis. When does it apply for Non-Domiciled individuals?
Badges of Trade
Are you trading, running a business, or just buying and selling investments? The 'Badges of Trade' are a set of indicators, built up over time by the courts, to decide when an activity is a trading or investment activity.
Profits from dealing in or developing UK land
A guide to the rules which replaced the old Transactions in Land provisions and extended UK taxation to all profits from trading in and developing UK land, regardless of residence.
How and when does Capital Gains Tax apply to non-residents owning UK property?