In this article, we provide an overview of the key changes in the tax treatment of UK property business after 6 April 2020.
Currently, a non-UK resident company carrying on a property investment business in the UK is chargeable to income tax on the rental income. From 6 April 2020 the UK property business will come within the charge to corporation tax. In this article, we provide an overview of the key changes in the tax treatment of such businesses, focussing on borrowing incurred by a non-UK resident company to fund the purchase and development of investment property in the UK.
Importantly, such funding will come within the scope of the various corporation tax provisions which determine whether and how interest payable and associated hedging contracts are to be taxed.
The effect of coming within the scope of the corporation tax rules can be summarised as follows.
The corporation tax treatment will apply from the commencement date of 6 April 2020.
It is likely that further changes will be announced for inclusion in the next Finance Act to ensure that the rules work as intended.
Existing non-UK companies with UK property businesses will, at the very least, need to assess the implications of transitioning to being within the corporation tax rules to identify any practical issues.
As part of this, it will be important to assess the impact on tax payments from the application of the corporate interest restriction rules, hybrid and other mismatch rules and the treatment of any hedging contracts.
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