Most readers of this article will be aware of the requirement of the Economic Crime (Transparency & Enforcement) Act 2022 for all overseas entities in England and Wales that have acquired an interest in UK real estate since 1 January 1999 to register details of beneficial ownership at Companies House by 31 January 2023.
However, rather fewer readers may be aware of a policy paper issued by HMRC on 16 December in response to these new requirements. The relevance of this is that HMRC is one of 54 (yes, 54!) specified public authorities to whom disclosure of information from the “Register of Overseas Entities” at Companies House is permitted under certain conditions. You wouldn’t see any reference to these information gateways in the Act itself, instead they are dealt with in separate regulations: Statutory Instrument No. 870 of 2022. The permitted conditions to be met for the release of information to HMRC by Companies House represent a very low hurdle; all HMRC needs to do is ensure the information is required to carry out its public function.
The policy paper states explicitly that the information it receives from the Register of Overseas Entities will be used to identify tax non-compliance by the overseas entities and by “beneficial owners” such as settlors and beneficiaries. In fact, we have already received reports of UK resident trust beneficiaries receiving “nudge letters” from HMRC based on their review of the Register. Bearing in mind the deadline for registration is still ahead of us, this is a very strong signal that HMRC intends to exploit this opportunity to investigate overseas structures to the fullest extent.
The HMRC paper sets out all the areas of tax it is concerned to ensure have been addressed correctly and the specific non-compliance risks for 3 specific groups. None of the topics raised by HMRC are surprising, but it is in one sense a very useful checklist for overseas service providers to be aware of for each structure they are managing.
Managers and administrators of overseas entities
The areas highlighted by HMRC are:
- The 15% SDLT rate for companies acquiring UK residential property over £500,000 that don’t qualify for relief from ATED
- The 2% surcharge for non-residents
- ATED for properties over £500k
- Non-resident CGT on residential property since April 2015
- Property development in the UK by overseas companies
- Gains on non-residential land and property and disposals of shares in “property rich” companies since April 2019
- Corporation Tax returns for rental income
- Company tax residence; is central management and control exercised in the UK?
Overseas trustees
The additional issues HMRC draw attention to specifically for trusts are as follows:
- Inheritance tax 10 year anniversary charges on residential property interests in otherwise excluded property trust structures
- The IHT implications of the domicile status of the settlor at the time of settlement and domicile status later, which can mean “protected trust” status is lost
- In the case of excluded property trusts, whether any UK situs assets were settled or were held on a ten year anniversary date
UK resident shareholders and trust beneficiaries
- Income tax charges under the transfer of assets abroad anti-avoidance regime for settlors or transferors as the income arises overseas and for those who have not transferred assets, income tax charges on the benefits they receive
- Attribution of trust income under the Settlements legislation
- Attribution of trust and company gains to the settlor or shareholders
The number of tax issues to consider illustrates the breadth and complexity of the UK tax legislation in relation to overseas structures and the difficulty in achieving certainty that they and their beneficiaries are fully tax compliant.
HMRC state that anyone with a disclosure to make should do so by 28 February 2023, but if a structure has not been reviewed recently that may be an unrealistic deadline. We have to expect that HMRC will begin to open its own investigations progressively after that date and that Common Reporting Standard data will also be used in conjunction with the Register of Overseas Entities. Trustees may be contacted by settlors and beneficiaries who are concerned about their own tax position having read about the Register.
The team at Trident Tax have deep experience in reviewing overseas structures over the last 13 years and have made hundreds of voluntary disclosures for affected parties under the various disclosure facilities that have been promoted by HMRC.
Because of this, we have developed a bespoke diagnostic tool to assist trustees, directors, settlors and beneficiaries understand whether they are fully compliant or not. Please contact us if you would like to discuss a structure with us or utilise our diagnostic analysis tool.