Does your overseas company own residential property in the UK?

If your company owns residential property in the UK, then you should expect to hear from HMRC. If you haven’t already.

As part of its tax collecting duties, HMRC previously concentrated on taxpayers’ overseas gains and income. You may have received a letter concerning your situation. Their next focus is on UK rental property income owned by overseas companies usually by UK non residents.

Who are HMRC writing to, exactly?

If you own, or live in, a British residential property with an overseas company as registered owner you should expect a letter.

  • Owner: In legal terms, this is the registered overseas company that owns the property.
  • Occupier: This technical definition means the individual(s) that pay rent to live in the flat or house.

HMRC are writing to both parties in an attempt to get a full financial picture.

What do the tax office letters ask for?

Essentially, HMRC are asking both occupiers and owners for the information they need to ensure that all taxes on rental income are being paid in full.

Occupiers

People living in these homes have been quite startled and concerned by these official communications. They are unexpected and any questions around the validity of your living arrangements is incredibly stressful.

And the letters are quite detailed. They have an attached form which asks for a lot of information, including how much rent you pay and when you started living at the property. The letter itself includes an explanation of how to take the tax out of the rent payment and pay it directly to HMRC. It describes the criteria of this requirement and the practical procedure you must follow.

All this can feel quite intimidating, when you’ve just been paying your rent as normal to this point.

Owners

The company or trust that owns the property will get a different letter. This letter talks about the Annual Tax on Enveloped Dwellings (ATED) regulations.

It also mentions the non resident landlord scheme (NRL). This scheme enables landlords of UK properties that live abroad to pay their British tax liability on the rental income. If this is you, HMRC must get your non resident company tax returns within their deadline.

How do I reply to this letter?

There are two very important points here. Firstly, this is an information gathering exercise by HMRC and, in the majority of cases, everyone’s tax position is correct. No threats of tenancy or ownership removal. Just a confirmation to HMRC that the tax being paid on the rental income is at the correct rate.

Secondly, make sure you do reply. Do not ignore these letters. HMRC will follow up and their procedures become increasingly formal, whether you’re the owner or occupier of the property.

But it is incredibly wise to get a professional’s opinion before you send your reply. And, if you are the owner, to get in touch with your tenant to find out what they have heard from HMRC.

Basically, if everything’s above board and you’re meeting your UK tax liability, this is just another paperwork exercise to complete. Official and important paperwork, but not anything to unduly worry about.

 

Tony Shanks
Operations Director
Member of the ATT

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