Are HMRC's plans to catch overseas criminals owning UK property driving away legitimate business

A new overseas entity register has come into force from 15 March 2022, the aim being that this will provide more information to help HMRC track down those using UK property for money laundering purposes and reveal the identity of the beneficial owners to ensure criminals cannot hide behind secretive overseas structures. It’s been a long time in coming as it was originally announced in May 2016. The reality of this new requirement is an increase in the administrative burden for foreign corporate owners of UK property, as well as a loss of privacy and security concerns for others.

Further to this, statistics released by HMRC show the Annual Tax on Enveloped Dwellings (ATED) receipts fell £17m in 2020/21, compared to the prior year. ATED was introduced in 2013 to ensure that UK residential property held by corporates was reported to HMRC and in some cases, tax was payable based on the value of the property. These figures may indicate that properties caught within the regime are being sold, or transferred out, as the benefits of these structures are no longer the same. In addition, the continuous fall in ATED receipts since 2015/16 may indicate that holding UK residential property in corporate structures, and potentially overseas, may be on the decline. This could be due to the properties being sold and funds being reinvested elsewhere, and not necessarily in the UK.

The main areas which still dominate the income receipts for HMRC from ATED are Westminster, Kensington and Chelsea, with London making up 85 per cent of the ATED income in 2020/21, however this has still seen a decrease. Interestingly, there has been a decrease in the number of properties with a market value over £1m which are liable for the ATED charge, compared to the prior year. This level of property entering the market is unlikely to assist the first-time buyer or the ordinary Londoner, but significant wealth being brought in may do.

Over the years the additional tax and administration burden of ATED, as well as the inheritance tax benefits which are no longer available and SDLT surcharges, have made these structures unattractive for foreign investors. This does beg the question on whether we should be penalising legitimate inward investment of wealth with such stringent regulations.

Is this too little too late from HMRC? Have those that they may have been trying to catch already de-enveloped out of the corporate structure? Are the new requirements just further deterring valuable foreign investment? Either way, it is imperative that foreign companies impacted by this change are complying with the information requests otherwise this could end up being a costly mistake.