Non-UK Resident Companies & UK Property Businesses

Currently, non-UK resident companies are, uniquely, subject to basic rate income tax on profits from a property letting business. However, this is changing, such that from 6 April 2020, they will instead be subject to corporation tax. This measure is designed to harmonise the tax treatment of UK-resident and non-UK resident companies receiving UK property income.

The changes are significant and will have an impact on all non-UK resident companies that carry on a UK property business, with modifications to almost every aspect of how tax is calculated, reported and paid to HMRC. Such companies will need to calculate their profits in accordance with corporation tax principles that will sometimes be significantly different from their current modus operandi.

Timing

For affected companies, the changeover will take place at the end of the current 2019-20 tax year, with the income tax property business being deemed to cease on 5 April 2020 and a new corporation tax business beginning one day later. Where companies do not prepare accounts on a tax year basis, a time-apportionment of income and expenditure will be required for the period that straddles the changeover date.

Losses

Any pre-6 April 2020 income tax property business losses that the company has at the changeover date will be carried forward into the new corporation tax business and will be available for off-set against the company’s post-5 April 2020 corporation tax property business profits. These losses will take priority to any post-5 April 2020 corporation tax property business losses.

Finance Costs

Finance costs, including qualifying interest payments, will no longer be deductible as an expense in calculating the company’s profits and will instead fall under the loan relationship rules, whereby profits and losses are computed separately. Whilst the method of relief will be different, relief should still usually be available in full. However, the rules here are complex and careful consideration will be required to comply, even where no disallowance is due, leading to an increased administrative burden for non-UK resident companies.

Capital Allowances

Transitional provisions have been introduced to ensure that the move from income tax to corporation tax is not going to be treated as a disposal event for capital allowances. Instead, the tax written down values at the end of 2019-20 will simply carry over to the beginning of the first corporation tax accounting period on 6 April 2020.

Administration

Companies will need register for corporation tax with HMRC, even if they are already registered under the Non-Resident Landlord Scheme. Companies will have to file a final Self-Assessment Tax Return in the normal way and then file a corporation tax return for the period commencing 6 April 2020 and subsequent periods, which will need to be done online using iXBRL and should be accompanied by accounts and tax computations.

The tax payment dates for corporation tax also differ to those with which non-UK resident companies will be familiar. Instead of the income tax payment dates of 31 January and July, the due date for companies with taxable profits of up to £1,500,000 falls nine months and one day after the end of the accounting period.

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