Offshore companies with UK property – update

HMRC have confirmed that they will be undertaking a campaign to address non-compliance with UK tax legislation by companies established outside the UK which hold UK property.

There are two types of letters which HMRC will be issuing –

• A letter which is specifically targeted at compliance with the ATED (Annual Tax on Enveloped Dwellings) regime or the non-resident landlord’s regime.
  
• A letter which specifically addresses Non-Resident Capital Gains tax charges but also references various other risks including ATED, gains attributed to UK-resident participators or charges connected with trading in UK land.

There are numerous risks around the operation of non-UK companies which will need to be considered and which are not detailed in the letters. In particular, it will be necessary to consider the extent to which a company might actually be UK resident as a result of management and control taking place in the UK. In principle there should be little net tax difference between the tax payable by a non-resident landlord prior to April 2020 and tax payable at UK corporation tax rates, and therefore it would not be expected that tax residence of non-resident landlords would be a matter of focus for HMRC. However, our experience is that liabilities can arise both as a result of Capital Gains falling into charge or as a result of the application of the loan to participator rules and HMRC will frequently want to consider the tax residence position of such companies with those risks in mind. The interactions between the tax affairs of a non-UK company and any participators or trustees who have an interest in the shares can also be complex. Anti-avoidance provisions in respect of both income and gains can give rise to unexpected tax consequences for participators in the company or UK resident individuals who may have received benefits either directly or through trusts. Finally, if liabilities arise, careful consideration will also need to be given to the potential impact of the Requirement to Correct penalty regime and to the extended time limits which apply for offshore matters. Finally, consideration will need to be given to the implications for reporting to Companies House under the Offshore Entities Register regime if a review of the position indicates that management and control of an entity may take place in the UK. The letters include Certificates of Tax position and therefore care is needed when responding. Jon Preshaw Tax Ltd have recently advised a number of non-UK companies holding UK property, their shareholders, participators and recipients of benefits from those companies in connection with HMRC enquiries. Our experience is that, because of the broad range of tax risks which might arise and the fact-sensitive nature of those risks, such enquiries can be complex and time-consuming. We recommend ensuring that a thorough examination of the relevant factual background is undertaken and the tax risks for all of the entities and individuals who may be involved are carefully assessed before engaging in substantive discussion with HMRC. Taking this approach will ensure that any enquiries are properly managed from the first interaction so that they can be concluded as efficiently as possible.

How we can help

If you or your clients receive a letter or would like to discuss any of these matters in more detail please call us for a free and no-obligation discussion.