HMRC’s latest round of nudge letters are due to target non-resident corporate landlords and will focus on the Annual Tax on Enveloped Dwellings ‘ATED’ charge, rental income and Non-Resident Capital Gains Tax ‘NRCGT’ between 2015 and 2019. Corporate landlords who are not up to date with their UK tax reporting responsibilities should therefore take immediate action in order to bring its affairs up to date and settle any outstanding tax liabilities. Should the company receive one of these letters, the directors should take appropriate advice before responding to HMRC.

Since 2015 there have been a number of changes affecting non-resident corporates holding UK property. A brief summary of each of these taxes that HMRC intend to focus on is as follows-

ATED

The ATED regime was introduced in 2013 and applies to enveloped dwellings (broadly UK property that can be used as a residence). Initially the ATED regime only caught properties valued in excess of £2 million, however, from 2015 the threshold reduced to £1 million and further reduced to £500,000 from 2016. If such property is owned by a company or collective investment scheme then there is a requirement to complete ATED returns even where a relief is due. The ATED charge that applies is based on the property’s value at the relevant valuation dates. If a company has not filed historic ATED returns then significant tax, penalties and interest are likely to be due.

Non-Resident Landlord Tax Return

Where rental income has been received by a non-resident company there is a requirement to file annual UK self-assessment tax returns. Details of the rental income and expenses will be included in the return to calculate any UK tax due. With effect from 6 April 2020, non-resident landlords became liable to UK corporation tax and are now required to file corporation tax returns and accounts to HMRC.

NRCGT

With effect from 6 April 2015 non-resident companies were liable to UK capital gains tax on disposals of UK residential property. Various calculation methods were available to calculate any gain arising which included re-basing the property’s value to 6 April 2015. Unless the disposal of the property was at no gain/no loss, there was a requirement to complete a NRCGT return and pay any tax due within 30 days from completion. With effect from April 2020, non-resident companies disposing of UK property are required to notify gains to HMRC on a corporation tax return.

Nudge letters are also being issued where the whole of any overall gain that hasn’t been subject to NRCGT has not been reported to HMRC (for example where a property was purchased before 6 April 2015). The gain relating to the ownership period prior to 6 April 2015 may have been subject to UK tax by the participators of the company. HMRC are able to identify beneficial owners of non-UK entities owning UK property using information received through the Automatic Exchange of Information ‘AEOI’. Individuals should consider making a disclosure through HMRC’s Worldwide Disclosure Facility ‘WDF’ should historic income and/or gains need to be reported to HMRC.

Transfer of Assets Abroad

In addition to the above, individuals with an interest in the income or capital of a non-resident structure may also need to update their tax affairs. The nudge letters are recommending that companies ask such connected UK resident individuals to check their affairs are in order and comply with the relevant anti-avoidance provisions.

If you require assistance or guidance following receipt of a nudge letter or need to bring a company’s UK tax position up to date, Irwin Mitchell have a specialist team who will be able to assist you.