In a move that underscores HMRC’s increasingly data-driven approach to tax compliance, “nudge letters” have been issued to individuals who were temporarily non-resident. These letters are part of a broader campaign to ensure that taxpayers who left the UK and later returned have correctly reported income and gains in the year they resumed UK residency.
What Are Nudge Letters?
Nudge letters are informal communications from HMRC that encourage taxpayers to review their filings. While not part of a formal investigation, they serve as a warning that HMRC has identified potential discrepancies or risks in a taxpayer’s records.
In this case, the letters are being sent to individuals who:
- Claimed non-residence in at least one tax year since 2018–19.
- Have since resumed UK residency.
- May have received income or made disposals while abroad.
- Did not declare these in their UK tax returns upon return.
The Temporary Non-Residence Rules
Under UK tax law, individuals who leave the UK but return within five full tax years may still be liable for UK tax on certain income and gains realised while abroad. This includes:
- Capital gains from asset disposals.
- Dividends and interest.
- Pension withdrawals.
These rules apply if the individual was a UK tax resident for at least four of the seven years before leaving. The aim is to prevent short-term departures from being used as a tax avoidance strategy.
What Should You Do If You Receive a Letter?
If you’ve received one of these letters, please seek professional advice from our team as soon as possible, as this may help limit formal compliance checks, penalties or interest if taxable income and gains have not been declared.
The Statutory Residence Test (SRT) is complex, and a full review may need to be undertaken to confirm the position. However, a proactive review now could prevent costly consequences later.
If you would like further information or any advice on this article, please contact your Ellacotts contact or contact us by emailing solutions@ellacotts.co.uk or call us on 01295 250401.
Frequently Asked Questions
HMRC Sends Nudge Letters to Temporary Non-Residents: What It Means for You
- What is a nudge letter from HMRC?
A nudge letter is a communication from HMRC encouraging taxpayers to review their tax affairs. It’s not a formal investigation but a prompt to ensure compliance. - Why did I receive a nudge letter as a temporary non-resident?
HMRC may believe you have UK tax obligations despite your temporary non-resident status, especially if you have UK income, assets, or previously claimed split-year treatment. - Does receiving a nudge letter mean I’m under investigation?
No. Nudge letters are informational and advisory. However, ignoring them could lead to further scrutiny or formal enquiries. - What should I do after receiving a nudge letter?
Review your UK tax filings, residency status and any income or gains that may be taxable in the UK. Seek professional advice if unsure. - What is temporary non-residence for UK tax purposes?
It refers to individuals who leave the UK for a short period (usually less than five years) and may still be liable for UK tax on certain income or gains. - Can I ignore the letter if I believe I’m fully compliant?
It’s best not to ignore it. Responding or reviewing your position shows good faith and may prevent future issues. - What are the tax risks for temporary non-residents?
You may be liable for UK tax on gains made while abroad if you return within five years, especially on assets sold during your absence. - Is HMRC targeting specific groups with these letters?
Yes. HMRC often uses data analytics to identify individuals who may have underreported income or incorrectly claimed non-resident status. - Can I dispute HMRC’s assumptions in the letter?
Yes. You can respond with evidence supporting your tax position, such as travel records, residency calculations and financial documentation. - Should I get professional help?
Absolutely. A tax advisor can help you interpret the letter, assess your exposure, and respond appropriately to HMRC.
Information for readers: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.
