The UK's HMRC is sending out two letters in a series of waves starting this month as part of a new campaign targeting offshore companies that own UK properties.
As part of the campaign, HMRC will be writing to offshore companies to ask whether the entity is compliant with its UK tax affairs, and may ask whether the same is true of any individual's associated with the entity (i.e. shareholders).
According to Hetal Sanghvi, partner in the tax team at law firm Edwin Coe, the campaign is thought to target offshore companies that own UK property as this was identified as a common area for non-compliance, following a review of data by HMRC.
The timing of these letters also comes shortly after the announcement of the Register of Overseas Entities, which came into force on 1 August 2022.
The law firm's briefing noted further highlighted that the Chartered Institute of Taxation (CIOT) has stated that two letters will be issued by HMRC and that they will likely be accompanied by a Certificate of Tax Position.
The first letter is to be directed at non-resident landlords that may have received income from the letting of a UK property. The letter may also be issued to an offshore company that had an obligation under the Annual Tax on Enveloped Dwellings (ATED) regime to file a return and/or pay the annual charge.
In addition, the letter will also address any UK individuals that may have been within the scope of the Transfer of Assets Abroad (ToAA) anti-avoidance provisions.
"This is a complex area where the individual shareholders may have failed to disclose the ToAA income on their tax returns in the UK, as they may not have been advised that they had any exposure to UK tax on this income, and we would recommend seeking specialist advice if you have any concerns", she said.
The second letter will focus on offshore companies that may have disposed of a UK residential property between 6 April 2015 and 5 April 2019. Any such disposal may have given rise to a filing obligation under the Non-Resident Capital Gains Tax (NRCGT) regime and any NRCGT liability should have been settled.
Both letters will contain a Certificate of Tax Position. This is a formal declaration that the overseas entity is compliant with respect to its UK tax affairs. If not compliant, the letters will suggest a disclosure is made via one of HMRC's approved disclosure mechanisms, in order to regularise the position.
"It is expected that the first wave of these letters will be received by offshore companies this month, therefore we would recommend any exposed or concerned offshore companies, and/or associated individuals seek tax advice to review and consider their specific circumstances, ideally before the letter lands.
"Those that have received such letters should seek advice before providing a response to HMRC. We would though strongly recommend these letters are not ignored, even if the belief is that the entity's UK tax affairs are up-to-date."
