Overseas Property-Owning Entities: A renewed UK tax focus

A short article by Jon Hanifan and Sutharman Kanagarajah.

In a previous flyer, published last month, we discussed UK law now requiring non-UK entities, which wish to buy, sell or otherwise transfer property or land in the UK, to:

• register with Companies House
• identify their registrable beneficial owners or managing officers, and
• update their record once a year (irrespective of whether there have been any ownership changes)

In addition to these new obligations, Her Majesty’s Revenue & Customs (“HMRC”) has recently communicated (to professional tax bodies) its intention to focus on ensuring longer standing tax obligations are being met.

What is HMRC to do?

HMRC is, in September 2022, to launch a “campaign” aimed at addressing, in its view, non-compliance by overseas corporates owning UK property.

HMRC’s actions have, it says, been driven by a data review, including from the Land Registry.

What might the campaign entail?

HMRC will issue one of two letters to taxpayers it considers in scope. Each letter will be accompanied by a “certificate of tax position”. More on the latter later.

The two letters will either be:

• issued to a non-UK resident company that owns UK property and which HMRC believes may need to disclose:
  • income received as a non-resident corporate landlord
  • a liability to the Annual Tax on Enveloped Dwellings (“ATED”)
  • a liability arising pursuant to the Transfer of Assets Abroad (“ToAA”) rules e.g., where a UK resident individual may have an interest in the income of the overseas landlord, even if that individual did not transfer the property to the non-resident
• sent to a non-UK resident company that owns UK property and which HMRC believes:
  • has made a disposal of UK residential property in the tax years 2015/16 to 2018/19 without submitting a non-resident capital gains tax return
  • could need to apportion some or all of the capital gains it has made to the participators (e.g., shareholders) in the company
  • has a potential liability to UK tax on rental income or under the ATED rules.

What is a certificate of tax position though?

This is essentially a form that HMRC asks be completed and returned, irrespective of whether the recipient has additional tax liabilities to disclose or not.

A UK taxpayer could, for example, use the certificate of tax position to disclose a UK tax underpayment or alternatively make a statement that their tax affairs are fully compliant and up to date.

In HMRC’s view, use of the certificate of tax position helps minimise the number of ‘no response’ cases they would otherwise need to follow up. 

How we can help?

Our Tax team, containing both corporate and personal tax experts, is well placed to help you understand both:

• the UK tax consequence of non-UK companies owing UK property
• how to respond to HMRC’s letter and indeed whether to respond at all.

While the letters are expected to be addressed to the property-owning body corporate, both are also anticipated to recommend that this entity asks connected UK-resident individuals to ensure their personal tax affairs are up to date in respect of the related anti-avoidance provisions.

HMRC has, in the past, generally given taxpayers 30 days to respond. We strongly suggest, however, that a certificate of tax position not be returned without first taking professional advice. There is not always a legal obligation to return the certificate of tax position at all, although this is to be balanced against the desire of the compliant taxpayer to put a stop to HMRC’s letters. HMRC have in the past accepted a letter in lieu of the formal certificate, and this may be the more appropriate response.

We will be pleased to discuss all of the above with you.

If you have any queries in respect of this article, please do not hesitate to contact Centralis or Wheelhouse Advisors.