Taxation of Non-UK Companies Investing in UK Property

Taxation of Non-UK Companies Investing in UK Property

Katie Kneale, Senior Tax Manager at KPMG Isle of Man, considers the impact that recent changes to the taxation of companies investing in UK property will have for non-UK resident companies.


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As many readers will be aware, the taxation of non-UK residents in relation to UK property has changed beyond all recognition in the past few years. Non-UK resident companies investing in UK real estate are used to filing UK income tax returns to declare their UK rental profits, and have also got to grips with the filing of Non-Resident Capital Gains Tax (“NRCGT”) returns and ATED-related capital gains tax (“ATED-CGT”) returns on the sale of UK residential property. They must now contend with the far more complicated issue of UK corporation tax which has, since 1 April 2019, applied to gains on the sale of both residential and commercial UK property and will shortly apply to their rental income profits.

Below is a brief summary of the changes and overview of the implications and considerations.

Chargeable gains

Non-UK resident companies have not previously been subject to UK tax on the disposal of UK commercial property (provided it was held for investment purposes), whereas disposals of UK residential property by non-UK residents have, since 6 April 2015, been subject to NRCGT or, for property above a certain threshold and subject to a number of exemptions, since 6 April 2013, ATED-CGT. The interaction between NRCGT and ATED-CGT meant that companies were sometimes faced with two capital gains tax returns to file and potentially both NRCGT and ATED-CGT to pay (albeit in respect of different tranches of the taxable gain).

From 1 April 2019, all UK property disposals made by non-UK resident companies (whether residential or commercial) are within the charge to UK corporation tax. A new charge on capital gains from the sale of certain property company shares (termed “indirect disposals” of property) has also been introduced. In conjunction with these changes, ATED-CGT has been abolished.

Disposals of UK commercial investment property by non-UK resident companies will be subject to UK corporation tax to the extent gains are realised when compared with the 1 April 2019 value of the property (subject to any other computational rules being elected for). As such, property valuations may be required so as to ascertain the 1 April 2019 “base cost”.

UK rental income

At present, profits from a UK property business generated by non-UK resident companies are subject to UK income tax at a rate of 20%. In general, the UK income tax rules in respect of the taxation of profits from a UK property business are less complex than the UK corporation tax rules applicable to the calculation of such profits.

From 6 April 2020, non-UK resident companies holding UK property will be subject to UK corporation tax on their profits from a UK property business. The rate of corporation tax, which is currently 19%, is due to reduce to 17% from April 2020.

HMRC have recently published guidance on registering a non-UK resident company for corporation tax and Companies will need to calculate their UK rental profits in accordance with the UK’s corporation tax rules, and will need to consider, amongst other things, the following:

  • Losses generated after April 2020 will be subject to restrictions to the way in which they are utilised. However, where a company is part of a group, it may be eligible to claim or surrender losses by way of group loss relief.
  • Companies may be brought within the Quarterly Instalment Payment regime, broadly speaking where their taxable profits exceed £1.5m (divided by the number of 51% group companies).
  • The loan relationship and derivative contracts regimes.
  • Various administrative/return filing implications (for example the possible requirement to file accounts in iXBRL format).

There is no doubt that many non-UK resident companies, used to dealing with the UK’s income tax rules, will find the transition to corporation tax onerous. If you require assistance dealing with this change, please contact a member of the KPMG Isle of Man tax team. We are here to help!

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