HMRC nudge letters

HMRC will shortly begin issuing letters to non-UK companies which own UK property.

There will be two types of letter –

1. Letters to companies which may be subject to tax as non-resident landlords or subject to tax under the ATED regime. HMRC also note that such income may be chargeable on UK residents with an interest in the company under the Transfer of Assets Abroad provisions.
   
2. Letters to companies which have disposed of property which may be subject to charges under the Non-Resident CGT regime. Again, HMRC note that participators in the company may be subject to tax under the provisions at s3 TCGA 1992 which attribute gains to UK resident participatory.

The letters will include ‘Certificates of Tax Position’ under which the directors of companies in receipt of these letters will be asked to confirm that no additional liabilities arise. Companies in receipt of such letters will need to consider a number of matters which might impact on both the companies and shareholders – Firstly, there are a number of complex issues which can arise where income or gains are realised by non-UK resident companies, particularly for any UK resident participators in the company or for beneficiaries of trusts which hold shares. HMRC recognise this and I understand that the letters will recommend that UK resident shareholders and beneficiaries ensure they have obtained appropriate professional advice. In some circumstances, the financial consequences of errors in this space will be compounded by the significant additional penalties under the Requirement to Correct regime (which can result in penalties of up to 200% of any tax found to be due). HMRC may seek to assert that the company is managed and controlled in the UK and therefore UK tax resident. The interaction between the company’s tax residence and the requirement to report persons with significant influence or control over the company under the new Register of Overseas Entity provisions will need to be carefully considered. It is also likely that HMRC will regard any errors which are disclosed following receipt of these letters as ‘prompted’ such that increased penalties will apply.

How we can help

In the event that a company receives a nudge letter from HMRC, I would therefore recommend that an assessment of the risks which might arise is carried out before a decision on how to respond is made. In particular, signing the Certificate of Tax Position without carrying out a thorough assessment of the risks is not recommended. If you or your clients receive a letter or would like to discuss any of these matters in more detail, I would be more than happy to arrange a call or meeting to explore the issues in more detail.