UK property income of non-UK resident companies

UK property income of non-UK resident companies - Crowe Ireland

From 6 April 2020, non-UK resident companies that carry on a UK property business, or have other UK property income, will be charged to Corporation Tax, rather than being charged to Income Tax as at present.

This change comes shortly after the introduction of non-resident capital gains tax for commercial property and property rich entities which will apply from April 2019.

This measure is designed to deliver more equal tax treatment for UK and non-UK resident companies in receipt of similar income, and take steps to prevent those that use this difference to reduce their tax bill on UK property through offshore ownership.

As a result of extending the scope of Corporation Tax to income and gains that non-resident companies receive from UK property a number of provisions have been made to ensure that a non-UK resident company:

  • will not have a disposal event for capital allowances purposes (which could, for example, apply on transition to the new regime) and that its income is not taxed twice or an expense is only relieved once
  • will not need to notify its chargeability to Corporation Tax in cases where its only UK income source is its UK property business provided that UK tax deducted at source from its rental income fully satisfies its liability to Corporation Tax on the profits of that business
  • can carry forward any existing Income Tax losses to be offset only against future UK property business profits chargeable to Corporation Tax (and these Income Tax losses are not subject to the 50% restriction on their future use as Corporation Taxes are, however such losses can also not be surrendered as group relief)

Non-resident landlord scheme

Non-resident companies are currently chargeable to UK income tax (capped at 20%) on their UK property business profits, with UK tenants and letting agents required to withhold tax from rent paid to non-resident landlords.

It is understood that, notwithstanding the switch to corporation tax, non-resident companies will still need to be registered under the non-resident landlord scheme (NRLS).

Whilst the current NRLS regulations (which are not being amended) exclude rental income both chargeable to corporation tax and attributable to a UK permanent establishment that will not extend to non-resident companies charged to corporation tax under the new scope.

Despite being within the scope of corporation tax, non-resident companies will still need to be registered under the non-resident landlord scheme in order to receive their rent gross

This measure is expected to affect approximately 22,000 non-resident company landlords who will now need to complete and file a Corporation Tax return.

If you would like to discuss how these forthcoming changes could affect you or your business, please contact our tax team.