Non-UK companies dealing in UK property to become subject to corporation tax

Posted on 11 January 2018

Non-UK companies dealing in UK property to become subject to corporation tax

From April 2020, non-UK resident companies that carry on a UK property business or have other income and gains derived from UK property will become chargeable to UK corporation tax.

The UK government launched a consultation in March 2017 on this change, the response to which was published in December 2017.

Currently, certain non-resident companies with UK property income and gains are subject to:

  • UK income tax for UK source property income from a UK trade;
  • the annual tax on enveloped dwellings ("ATED") for high value UK residential property (unless an exemption applies); and
  • ATED-related CGT and/or non-resident CGT ("NRCGT") on gains from disposals of UK residential property. From 2019, the UK government will tax gains from disposals of all UK immoveable property by non-UK resident companies.

Under the proposed changes, from 6 April 2020, non-resident companies will be subject to corporation tax on gains from the disposal of UK residential property and on income from UK property and such companies will need to file corporation tax returns. There will be a "deemed cessation" of the non-resident company's existing UK property business for income tax purposes on 5 April 2020, and any unused losses will be carried forward.

This change is intended to provide a unified approach whereby non-UK resident companies and UK resident companies alike will be subject to UK corporation tax on similar UK property income and gains. The new corporate interest deductibility and loss relief rules will therefore also apply to those companies.

By the time the changes apply, corporation tax will be levied at 17%, a reduction from income tax rates, which is currently charged at 20%.

Full technical consideration is yet to be given to certain key areas affected by the proposal, including capital allowances and the non-resident landlord scheme. Transitional provisions are proposed to ensure profits are not taxed twice (or not at all).

Draft legislation is expected in summer 2018 under the Finance Bill 2018/19.

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