As with previous campaigns on areas such as potentially undeclared offshore income and gains and erroneous business asset disposal (previously known as entrepreneurs’ relief) claims, HMRC is set to send out ‘nudge’ letters to overseas companies that own UK property. This is one of a number of similar campaigns that HMRC is launching, including targeting potential share disposals for outgoing Persons of Significant Control.
What is a nudge letter?
A nudge letter is a similar letter sent to a population of taxpayers that HMRC considers may have the same specific tax risk. If you receive a nudge letter you will be encouraged to review your tax affairs and if appropriate, make a disclosure of any inaccuracies to HMRC.
A letter may also be accompanied by a certificate that requests any response to be declared correct and complete to the best of the recipient’s knowledge and belief.
This declaration contains a warning that any material inaccuracy in the response provided to HMRC may result in a criminal investigation and prosecution. There is no legal requirement to complete the certificate, but the invitation to do so highlights the importance of seeking the professional advice as soon as you receive a nudge letter.
Together with other campaigns, HMRC is targeting non-resident corporate owners of UK property that may not have met their UK tax obligations. Using data from the Land Registry and cross-referencing with internal records, they are targeting owners who may not have submitted a Non-Resident Capital Gains Tax (NRCGT) return, as well as those who have submitted a NRCGT return but haven’t submitted other required returns such as Annual Tax on Enveloped Dwellings (ATED) returns.
From April 2013, corporate owners of high value UK residential property are required to submit ATED returns on an annual basis. There is also an ATED charge payable, unless the property is used for a purpose that meets the strict relief criteria or is owned by an exempt body such as a charity. It is important to note that, even where a relief is available, ATED returns must still be filed.
In addition, from April 2015, non-residents first became taxable on gains arising from the disposal of UK residential property. This was then expanded to all UK property with effect from April 2019.
HMRC may issue one of two letters which will be accompanied by a Certificate of Tax Position. While the letters are addressed to the corporates, both 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.
One letter 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 ATED. The other letter 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 NRCGT return.
As there have been huge changes to the taxation of UK property in the last decade, especially with regards to non-residents, this campaign is not unexpected. But it does show that there is clearly a lack of compliance that HMRC wishes to target.
Given the complex nature of nudge letters and the associated requirements, we would strongly suggest that advice is taken from a tax professional before responding.