HMRC activity in the Real Estate sector

HMRC has ramped up its efforts to tackle tax non-compliance in recent years, and the announcement of an additional £79 million of investment in the Autumn Statement is likely to boost this in the coming years. ‘Nudge’ letters are often used to target non-compliance risks, which are informed by HMRC’s large database of financial information and issued to taxpayers who may need to review and potentially correct their tax position.

Individual landlords

Educational nudge letters

HMRC may issue letters that prompt recipients to check that their affairs are correct with no response required, such as a recent campaign to landlords using the tenancy deposit scheme. A thorough review of the client’s tax position should still be conducted on receipt of such letters, and a record of the conclusion kept on file if no action is taken.

Let Property Campaign (LPC)

The LPC is one of HMRC’s largest nudge letter campaigns and formal disclosure routes. It is aimed at individual landlords who need to disclose undeclared rental income from UK residential property. Although it cannot be used by companies or trusts, any landlord with undeclared rental income should seek specialist advice regarding a disclosure to HMRC to mitigate tax, penalties and interest.

Corporate landlords

Worldwide Disclosure Facility (WDF)

Nudge letters regarding offshore income and gains are triggered by information that HMRC receives under information exchange agreements with overseas tax authorities. This also includes income or gains derived from overseas property that may be taxable in the UK, depending on the taxpayer’s residence status. The WDF can be used by individuals, companies and trusts who have income or gains deriving from overseas property to disclose.

Offshore corporates owning UK property

HMRC has compiled data received from land registry and the Common Reporting Standard (CRS), one of the largest international exchange of information agreements, to identify UK property owned by offshore corporate structures. The corporate owner may receive one of two letters below.

1. Non-Resident Landlord (NRL) or Annual Tax on Enveloped Dwellings (ATED) liabilities and annual tax obligations.
2. Non-Resident Capital Gains Tax (NRCGT) filing obligations where property has been disposed of between April 2015 and April 2019, but no capital gains tax return has been filed.

Although the letters are targeted at the corporate owner, UK-resident participators will also need to review their affairs to assess whether they may have any undisclosed liabilities.

It is vital that specialist advice is sought when any of these nudge letters are received, as an appropriate response must be submitted to HMRC within 40 days of receipt.

Future activity

The register of overseas entities is effective from 31 January 2023, by which date overseas entities owning or purchasing UK property should have registered with Companies House and identified their beneficial owners. HMRC will then have even more information to identify corporate owners of UK property at risk of non-compliance. HMRC has already indicated that it will be using data from the Register to drive targeted one-to-one activity with property owners and entities which may facilitate the concealment of beneficial ownership.

HMRC has indicated that it will be alert to a wide range of tax risks including overseas corporates that may have a UK presence, capital gains tax on disposals of UK property, SDLT liabilities, inheritance tax in relation to overseas trusts and the transfer of assets abroad anti-avoidance code designed to capture UK-resident participators with direct or indirect interests in the corporate structure.

If you would like to talk more on how these issues may affect you, please get in touch with John Cassidy, Caroline Fleet, or your usual Crowe contact.