From 6 April 2020, changes are coming which will affect the way in which non-UK resident companies are taxed on any profits made from UK property businesses. Any companies which may be affected should discuss the impacts with their advisers to ensure that the transition takes place as seamlessly as possible and all compliance requirements are met.
Under current rules, corporate non-resident landlords (‘NRLs’) are subject to income tax on UK property rental income. From 6 April 2020, new rules come into play whereby corporate NRLs will instead be chargeable to corporation tax.
This update will bring about new requirements for administration and potential changes in the rate of tax applied to profits.
The rate of income tax previously applying to NRLs was 20%.Under the new regime, this will fall to the corporation tax rate. The current rate of UK corporation tax is 19%. Furthermore, the planned reduction to 17% from April 2020 has been put on hold to prioritise money for the NHS and other services. The Spring Budget on 11 March will be expected to confirm this position.
There are several administration aspects that NRLs will have to comply with under the new regime. Any company that currently files a NRL return will need to register for corporation tax if they have not completed this already. This should be automatic for existing NRLs that have previously filed returns with HMRC but any new entities will be required to register.
Other differences from the existing regime include the due date for filing corporation tax returns and the date on which payment of tax is required, which could impact cash flow. Returns will be required to be filed online within 12 months of the accounting period end along with iXBRL tagged accounts. Payment of corporation tax will be due to HMRC nine months and one day after the end of the period. Companies may also have to consider whether they will qualify as a large company for corporation tax purposes, which could mean that payments are required quarterly throughout the year.
In addition, NRLs will be subject to additional corporation tax legislation and anti-avoidance rules that were not applicable under the previous regime. They will have to consider whether they fall into a corporate group for tax purposes, and this could have follow on effects on how losses are able to be utilised by the NRL and how much interest can be deducted when calculating taxable profits.
Any NRLs which generate income from UK property should review their portfolio with their advisers to ensure the potential impact of the new rules has been considered. This will allow companies to plan ahead for any additional compliance and payment obligations.