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Taxation of non-UK companies investing in UK property

Taxation of non-UK companies investing in UK property

From April 2019 non-UK resident companies will be within the scope of UK tax on chargeable gains realised on the disposal of all UK property.

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As you will no doubt be aware, from April 2019 non-UK resident companies (as well as individuals) will be within the scope of UK tax on chargeable gains realised on the disposal of all UK property (i.e. both residential and commercial). The new rules will extend to taxing chargeable gains on disposals of interests in UK land, as well as disposals of a substantial interest in UK property rich entities (i.e. entities deriving at least 75% of their value from UK land).


Following this, from 6 April 2020, non-UK resident companies holding UK property will be subject to UK corporation tax in respect of their rental income profits (as opposed to being subject to UK income tax, as at present).

 

A brief summary of the changes and overview of the implications and considerations is set out below.


Chargeable gains
Current rules
At present, non-UK resident companies are not subject to UK tax on the disposal of UK commercial property (provided it is held for investment purposes), whereas disposals of UK residential property by non-residents have, since 6 April 2015, been subject to non-resident capital gains tax (“NRCGT”) or ATED-related NRCGT (subject to a number of exemptions).


April 2019 changes
All disposals made by non-resident companies (whether residential or commercial, including indirect disposals) will come within the charge to UK corporation tax from 1 April 2019.
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
Current rules
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.


April 2020 changes
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.


Accordingly, companies will need to consider the full range of other rules that will be applicable under the UK’s corporation tax legislation. Such further considerations will include, but are not limited to, 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).

Should you have any queries regarding the above, please contact David Parsons, Robert Rotherham or your usual point of contact.

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