HMRC prepares for new 'nudge' letter campaign aimed at offshore corporates owning UK property

HMRC are targeting offshore corporates that own UK property and who may not have met all of their UK tax obligations.  HMRC have confirmed that they will be launching a new campaign in September 2022.

They may issue one of two letters and be accompanied by a Certificate of Tax Position, depending on the circumstances. The letters will be addressed to the corporates but will also recommend that the companies ask connected UK-resident individuals to ensure their personal tax affairs are up-to-date.

Overseas entities should also be aware of the new Register of Overseas Entities held by Companies House that went live on 1 August 2022. The Register requires overseas entities that own land or property in the UK to declare their beneficial owners and/or managing officers, and there will be severe sanctions for those who do not comply.

What are nudge letters

Nudge letters are targeted communications from HMRC to taxpayers whose tax affairs they suspect may not be fully in order. Previous recipients have ranged from multinational organisations (where the tax in question was the diverted profits tax) to individuals suspected of having undisclosed offshore income or capital gains. Nudge letters offer the recipients an opportunity to engage with HMRC to remedy the suspected defect outside the normal enquiry process.

The two planned 'nudge' letters

• A letter will be issued to non-resident companies that own UK property and may need to disclose income received as a non-resident corporate landlord, or a liability to the Annual Tax on Enveloped Dwellings. The letter will also recommend that any individuals who may be within the Transfer of Assets Abroad legislation should seek professional advice to ensure their affairs are up-to-date and in order.

• A letter will be issued to non-resident companies that appear to have made a disposal of UK residential property between 6 April 2015 and 5 April 2019, without filing a Non-Resident Capital Gains Tax return.

In our experience, HMRC send nudge letters to taxpayers when they have grounds to suspect that an organisation or person's tax affairs may not be in order and these letters should therefore not be ignored.  Further action is likely to be taken by HMRC if recipients of the letter take no action.

If HMRC have made an error, it should be possible to correct it by prompt and substantive engagement with them. Equally, if it emerges that corrective action is required, open and early communication with HMRC will minimise the risk of HMRC escalating matters and/or imposing penal sanctions for the alleged wrongdoing.

Further action

If you have received a nudge letter relating to the above, or for any other reason, and require expert advice and assistance, please contact: Adam Craggs or Liam McKay.