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Strange one - undeclared foreign BTL since 2004 -

Client has told me he has a foreign BTL & wants to make a declaration. Complex...

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Client has told me he has a foreign BTL & wants to make a declaration.  Decent client for whom we do the rental accounts for his UK portfolio.  He has an Irish accountant who submits the Irish return for the Irish property, but he didn't know he had to declare in the UK.  Asked me to calculate the tax owed and to do a let property campaign disclosure - fine.

I have assembled the income & exp using the Irish accounts figures and because of interest on the property, plus W&T which was allowable back then etc, there are losses for most years from 2004 upto 2013, then profits from 2014 to 2018.  I calculated the whole position and carrying the early losses against the later profits results in an overpayment in some of the later years (due to FTCR re Irish tax paid).

If we dosclose the 14 years using let property campaign, with an overall 'overpayment', will HMRC make the repayment, or (as I expect) will they say no, "claim overpayment relief for any losses in the past 4 years but other than that, tough"?

Anybody have any ideas?  I've only ever done let property dosclosures where there has been tax underpaid.  Is it the case that it is a 'disclosure' if you owe tax, but 'overpayment relief restricted to 4 years where HMRC owe repayments'?

Thanks in advance of any help!

Replies (7)

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By Wanderer
29th Jan 2020 04:26

Manchester_man wrote:

I calculated the whole position and carrying the early losses against the later profits results in an overpayment in some of the later years (due to FTCR re Irish tax paid).

Are you sure your calculations & concepts here are correct? Isn't it more likely to be a nil due / nil repayable result.
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By Matrix
29th Jan 2020 06:29

Overpayment of what? Why would a tax credit on the Irish tax paid give rise to a repayment of UK tax? Sorry if I have misunderstood.

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By Tax Dragon
29th Jan 2020 08:20

I too don't understand how there can be a repayment when the income hasn't been declared to begin with. I say the income hasn't been declared... if your comps are right, it's more that the losses haven't been claimed. On which basis, I suspect you will get the "tough" comeback from HMRC. But what's you alternative? You're gonna have to declare it.

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By Tim Vane
29th Jan 2020 09:07

I have to slightly disagree with my learned colleagues above. The loss should be allowable and should be claimed and rolled forward. HMRC may choose to reject some of the loss claim in their LPC offer as being out of time but it’s still worth making the claim. The worst that can happen is they assess the loss making years as null but their guidance does allow for the possibility of earlier year losses on declared rentals.

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Replying to Tim Vane:
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By Wanderer
29th Jan 2020 09:55

Tim Vane wrote:

I have to slightly disagree with my learned colleagues above. The loss should be allowable and should be claimed and rolled forward.

Learned (not sure I qualify as such) colleagues are not disagreeing with you Tim. All the above are really querying how the OP can come up with an over payment of UK tax.
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By richard thomas
29th Jan 2020 11:54

A few preliminary points.

• Like others I do not see how you can possibly have a repayment position for UK tax purposes, if no UK tax has been paid on the Irish income. The only (remote) possibility would be if a loss for any year consisted of or included capital allowances, when a claim to sideways relief might be possible under s 379B ICTA 1988 or s 120 ITA 2007, but I assume any such claim would be out of date by now.

• Have you expensed the Irish tax in computing the losses? See s 112 TIOPA 2010.

• Have you taken account of the interest restriction for 2017-18?

• Overseas property losses are automatically carried forward. They do not need to be claimed.

But what exactly are you proposing to disclose under the Let Property Campaign? Paragraph 1.2 of the webpage about it says:

The Let Property Campaign is an opportunity open to all residential property landlords with undisclosed taxes. [My emphasis on the last three words]

If the position for UK tax is that there is no liability to tax on the Irish rentals for any tax year because of losses brought forward, then there is an error in the returns, but it is not one that “amounts to, or leads to an understatement of a liability to tax, a false or inflated statement of a loss or a false or inflated claim to repayment of tax". One of those is required for Schedule 24 FA 2007 to apply.

But if in the next return you show losses brought forward against the Irish property income, some white space explanation would be a good idea.

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By Manchester_man
30th Jan 2020 02:25

Sincerest apologies and thanks.

You are of course correct; in over thinking the LPC situation, I have failed to study the comps in detail (jumping the gun). In my defence, my head is overloaded with tax return fever. Why do I always get 500% of normal levels of 'non 31/1 deadline related work' and/or additional problems in the final 2 weeks of January?

I had input the foreign tax deducted in the FTCR box in Taxfiler, thinking it would restrict a claim to the lower of foreign tax / UK tax due on the foreign income, but it doesn't. It is a box purely for 'claiming' FTC. Otherwise, it deducts the foreign tax from overall tax.

There were already repayments in some of the years, so what I have done has increased the repayments, which probably added to my confusion.

I think I will do as Richard says, i.e. NOT declare the undeclared losses, but start to declare going forward.

I will pause until after 31/1 and revisit then.

Thanks again to all

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