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Overseas landlords have days to disclose unpaid tax

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HMRC has warned offshore entities they must act before 28 February to start the disclosure process for any tax relating to their UK properties, to avoid even higher penalties.

24th Feb 2023
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The register of overseas entities (ROE) is providing a rich seam for HMRC to mine for potential tax liabilities, including Stamp Duty Land Tax (SDLT), the Annual Tax on Enveloped Dwellings (ATED), corporation tax, income tax, capital gains tax (CGT) and inheritance tax (IHT).

What is the ROE?

The ROE was set up on Companies House in 2022 to provide transparency over the ultimate beneficial interests held by non-residents in UK property. As Natasha Heron explained, the aim is to prevent money laundering by overseas residents through UK property ownership.

The beneficial owners or managing officers of the non-resident entities (companies, trusts and individuals) were required to register their interests in UK property by 31 January 2023. This applied to property held on 1 August 2022 and property acquired since 1 January 1999 (8 December 2014 for properties in Scotland), even if the property was disposed of before August 2022.

What are the implications?

Where an overseas entity wants to buy, sell or transfer land or property in the UK, it must first register on the ROE.

Failure to register the beneficial interest on the ROE is a criminal offence, as is the provision of false or misleading information in an application to register.

What is HMRC after?

HMRC now has full access to the information on the ROE, possibly including details which are not publicly visible on the register. It is using this data in conjunction with information obtained through international agreements to identify non-compliance with UK tax laws.

Example

A company in the British Virgin Islands which owns £16.5m residential property in London could be subject to:

  • SLDT at 15% if purchased after 21 March 2012 and if it isn’t commercially let or subject to another exemption.
  • SDLT surcharge at 2% if purchased since 1 April 2021.
  • ATED at £122,250 for 2022/23 and similar amounts for all previous years of ownership since 2013/14, unless an exemption applies.
  • Corporation tax if it is let out from 6 April 2020, income tax before that date.
  • Corporation tax when it is sold for a gain.

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Range of taxes

HMRC has set out all the possible taxes and charges an overseas entity may be subject to if it has not fully declared its ownership and profits from a UK property to HMRC. In addition, there are likely to be local authority business rates or council tax charges to pay.

The ATED is a particular trap as the charge applies according to the value of the property on 1 April 2012 where the property was held at that date, otherwise the purchase cost when acquired later.

However, that initial value needs to be revised to the current market value on 1 April 2017 and then again on 1 April 2022, in order to calculate the ATED charge for the following five years. There will be serious amounts of extra tax due where the property value has moved into a higher ATED band, and the property owner or their adviser has missed this revaluation requirement.  

Where a non-resident company has been developing property in the UK, this activity may have created a UK permanent establishment for the company, which means it will have become liable to UK tax on part of its trading profits.

Using a non-resident trust to hold UK property will not keep that property out of the UK tax net, as since April 2017 UK residential property is no longer excluded property. This means the trust would be subject to ten-year IHT charges.

Disclosure process

Where the overseas entity has not paid the right amount of tax in respect of a UK property, the entity should tell HMRC before 28 February 2023 that it intends to make a disclosure.

Where fraud has been committed (ie false documents or false representations) the disclosure should be made using the Contractual Disclosure Facility. In all other cases, the disclosure should be made using the Worldwide Disclosure Facility (WDF).

The unpaid tax will have to be paid with interest and penalties. The amount of penalty will be negotiable, but if the intention to disclose is made later than 28 February 2023 this will be treated as a prompted disclosure leading to higher penalties.

Replies (4)

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VAT
By Jason Croke
24th Feb 2023 12:59

It might be a criminal offence to not disclose the ultimate owner, but then how does HMRC prosecute that when they don't know who to serve?

With the news item yesterday about a law firm that acted for Wagner group boss and their AML amounted to the Wagner boss sending a copy of his Mums electric bill (because he lived with his mum apparently) and that was sufficient for the law firm to act....does make you wonder just how many teeth this ROE legislation will have....no doubt it'll capture the innocent and the slightly dodgy, but the big stuff will continue to confound and bedazzle HMRC for decades to come.

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By Hugo Fair
24th Feb 2023 23:08

"Failure to register the beneficial interest on the ROE is a criminal offence, as is the provision of false or misleading information in an application to register"
... so who, as Jason says, is going to be prosecuted?

Sanctions busting allows seizure/forfeiture (even if not often applied), so what tools do HMRC (or Land Registry or CH) have to enforce the non-compliant?

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By Justin Bryant
27th Feb 2023 16:06

"...the entity should tell HMRC before 28 February 2023 that it intends to make a disclosure"

Just being a bit pedantic, but that's "by" 28.2.23, not "before".

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By Moo
27th Feb 2023 18:17

I suspect much of the policing of this will be at the Land Registry which will now require an overseas entity ID issued by Companies House in order to register a purchase or sale by an overseas entity.

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