Residential property companies under scrutiny

Residential property companies under scrutin

Residential property companies under scrutin

HM Revenue and Customs (HMRC) appear to be closing the net on those making use of complicated financial planning systems regarding their residential properties which could see wide-ranging tax enquiries. The Annual Tax on Enveloped Dwellings (ATED) comes into play on 1 October when company returns have to be made with regards to residential properties valued at over £2 million.

Payments due under the ATED system will be payable by 31 October ranging from £15,000 up to £140,000 depending upon the value of the property in question. While this is fairly straightforward, the use of offshore companies for those domiciled in the UK and non-UK domiciles could result in more in-depth tax enquiries on the part of the authorities.

Closing loopholes

HMRC has been undertaking a thorough review of the tax system in the UK and a number of arrangements have already been put in place with regards to “tax haven” information which was previously not available. The authorities have not made any suggestion that tax avoidance is coming into play, nor have they made any estimates about potential payments under the ATED system, but previously legal tax structures could well be investigated further.

Quote from : “If you look in the UK property news you will see talk of further increases to come, easy money and a raft of investors waiting to buy yet more property.”

The authorities are concerned that many offshore companies often have links to offshore trusts to which very different tax rules apply. There is the potential for HMRC to announce more in-depth investigations into an individual’s financial and tax affairs which could potentially lead to future tax demands.

Checking your records

HMRC has formally advised those looking to make ATED arrangements to undertake a “health check” in relation to their UK tax records. Individuals have been advised to go back four years and if any issues do arise they should proactively report these to HMRC as soon as possible. Historically HMRC has been more lenient on those who have stepped forward to make them aware of potential issues with regards to their tax records rather than those who ignore potential issues which need to be investigated in greater detail.

It is likely that a number of accountants across the UK will now be scurrying to check the records of their high net worth customers to ensure that their tax arrangements and their company set-ups are in order. Indeed HMRC has the ability to look back 20 years in the most serious cases of potential tax avoidance which could potentially open up a can of worms for many people.


Slowly but surely the UK government has been closing a number of loopholes with regards to UK property investment, offshore companies and offshore trusts. The ATED system may well lead to a number of more in-depth investigations which could in theory see a number of high net worth individuals brought to task.

It will be interesting to see whether any individuals do step forward to make HMRC were of potential issues and indeed how these are handled by the authorities. This comes at a time when the UK property market is going from strength to strength as overseas demand continues to push prices higher.

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