HMRC receives a wealth of data, which enables its specialist Risk and Intelligence Service, Offshore Unit to build a database of taxpayers to send nudge letters to. Its latest nudge campaign seeks to target offshore entities owning UK property. The aim is to catch any Annual Tax on Enveloped Dwellings (ATED) non-compliance and/or failure to report UK rental income. The nudge letters ask entities to check whether or not they've historically been compliant with the ATED regime and separately, whether they've declared all UK rental income received to HMRC.
Companies, partnerships with a corporate partner, and collective investment-schemes owning UK residential property above a certain value are required to file annual ATED returns and either pay the tax due or claim relief from the charge (if applicable). This also applies to offshore entities owning UK property.
Entities will fall within the ATED regime if they have UK residential property with a value in excess of:
- £2 million (for returns from 2013 to 2014 onwards)
- £1 million (for returns from 2015 to 2016 onwards)
- £500,000 (for returns from 2016 to 2017 onwards)
Offshore companies owning UK property are also required to report any rental income received to HMRC under the non-resident landlord ('NRL') scheme. Prior to 6 April 2020, the rental income was subject to income tax. From 6 April 2020, the rental income is subject to corporation tax.
What should I do if I get a nudge letter?
The letters being sent by HMRC enclose a 'certificate of tax position'. HMRC asks that the taxpayer reviews their historic tax affairs, check if there's an irregularity and sign and return the certificate to HMRC confirming the position. However, there's no legal obligation on the individual to complete the certificate and specific guidance has been published by the Chartered Institute of Taxation (CIOT) on how to approach responses.
Care should be taken regardless of whether or not there's a mistake in your historic tax affairs. If you do get a nudge letter, a qualified adviser can help you think about next steps.
For more insight and guidance, get in touch with David Francis.
