Following on from our September 2023 insight, HMRC’s focus on the property sector continues.

HMRC’s latest ‘One to Many’ property related nudge letters are targeting taxpayers who:

• Incorporated their property business during the 2017/18 tax year.
• Claimed for repairs and maintenance on the land and property pages of their 2021/22 Self-Assessment tax return.

2017/18 Incorporation Relief claim

The letter states that HMRC holds information which suggests too much Incorporation Relief may have been claimed, and as such, that insufficient Capital Gains Tax (CGT) may have been paid. The letter asks the taxpayer to check their Incorporation Relief calculation and to also look at the following areas:

• That the capital gain arising on incorporation was not greater than the value of the property business that was transferred;
• That the amount of any gain held over did not exceed the value of the shares received; and
• That the Incorporation Relief claim did not include any other type of consideration, other than the shares received in exchange for the property business, i.e. a sum credited to a director’s loan account.

Taxpayers will have 30 days to respond from the date of the letter. If HMRC does not receive a response, it will review the information it holds and may raise discovery assessments, which can expose the taxpayer to higher penalties.

Given the technical nature of Incorporation Relief, we would strongly recommend taking professional advice if you receive such a letter.

Whilst this is a specific HMRC campaign focused on incorporations, we expect HMRC to continue to see property as a sector which will generate additional tax revenues and that further ‘nudges’ will be coming in the year ahead.

2022 repairs and maintenance

Nudge letters are also being sent to taxpayers who completed land and property pages in their 2021/22 tax return where repairs and maintenance (R&M) expenditure was claimed as HMRC believes too much relief may have been claimed. HMRC is concerned the R&M expense figure may include capital costs – the letter provides some examples of costs which are deductible and those which are not. HMRC is requesting that taxpayers review their 2021/22 tax return, and if an amendment is required, this must be filed to HMRC by 31 January 2024.

How we can help you

If you discover an error or omission within a tax return, voluntarily disclosing this before HMRC sends a nudge letter or opens an enquiry will lead to a more favourable outcome for you. If you act after receiving a nudge letter, HMRC will deem any disclosure as ‘prompted’, meaning exposure to higher penalties. We have detailed knowledge of HMRC’s powers and processes and can ensure an efficient outcome in all types of enquiries, disputes or tax disclosures with HMRC. We can also agree a payment plan with HMRC for any additional tax liabilities that are due.

Please get in touch with Danielle Ford, Partner and Head of Tax Disputes & Resolutions, or Riocard Hoye, Senior Manager, if you require assistance.