HMRC pursues 5,500 offshore companies over missing property taxes

HM Revenue & Customs is preparing to write to more than 5,500 overseas businesses it suspects have failed to pay enough tax on the UK properties they own.

As part of the tax agency’s latest attempt to make sure taxpayers follow the rules, the tax authorities will send ‘boost’ letters to thousands of people who own property in the UK through the through offshore companies which “seem not to have informed” him of the tax due.

HMRC said it plans to write to more than 4,000 businesses over the next year which it says owe either corporation income tax or the annual tax on wrapped up accommodation (Ated ) on British ownership. Another 1,500 businesses will be subject to unpaid capital gains tax on property sales between 2015 and 2019.

“These numbers seem like a lot, but they also seem realistic,” said Adam Craggs, a partner at law firm RPC, adding that many non-UK domiciled people choose to own property through a company to maintain their anonymity on UK land registers.

HM Land Registry data in November showed around 93,000 title deeds in England and Wales were owned by foreign companies.

The tax benefits for wealthy non-doms to own property in the UK through an offshore company have been strengthened over the past decade. Ated was introduced in 2013 as an annual tax imposed on businesses that own UK homes worth more than £500,000 and not let on a commercial basis.

According to HMRC accounts, Ated has raised around £100million in tax over the 12 months to March 2022. The annual charge payable through Ated increases with property value, rising from £3,800 for properties valued between £500,000 and £1 million, at £244,750. for properties worth more than £20 million, in the current tax year.

Since 2015, UK estates held by foreigners have been subject to capital gains tax, which is charged at 28% on sales profits for higher and additional rate taxpayers. As of 2017, non-UK resident shareholders of an offshore company that owns UK residential property also fall within the scope of UK inheritance tax.

Jamie Mathieson, partner at JMW Solicitors, said that while it was “certainly advantageous years ago” to own property through a corporation, “the advice now is generally to have direct ownership” .

HMRC has increased its use of reminder letters in recent years to encourage taxpayers to make voluntary disclosures.

Tom Wallace, director of tax investigations at WTT, a consultancy, said tax non-compliance “usually results from a misunderstanding of the rules and how they are applied”.

There are nuances in this area of ​​property taxation. Businesses that own properties in the UK as part of a rental business can get full Ated relief, for example, but it’s not automatic and must be claimed, Wallace said.

Yet when the property is let to a family member, even on a commercial basis at the prevailing market rate, Ated is due and no repairs are available.

For landlords who receive a reminder letter, Jack Prytherch, a solicitor at law firm CMS, said that while there is “generally no strict legal obligation to respond” to letters, it “would be inadvisable to ignore them. “.

The campaign to reclaim tax from offshore landowners comes as HMRC is under pressure to close the offshore tax gap – the difference between the amount of tax paid and the amount of tax due – for taxpayers strangers.

Earlier this year, the taxman admitted he had no idea how much tax he was missing due to money being held offshore, but said he would issue “a new offshore tax gap Autonomous” in 2023, which will estimate the amount of tax avoidance and evasion by UK taxpayers holding overseas assets.

In the 2021-22 tax year, HMRC issued 18,260 reminder letters relating to all offshore matters, raising £29million. It would otherwise have gone unpaid, he said.

HMRC said its reminder letters “combine data from multiple sources to ensure we can reach the intended audience”.

“We want customers to come forward and update their tax status or tell us why they don’t owe any tax. If customers cannot pay the tax they owe, we will work with them and provide assistance,” he said.

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