One aspect of the taxation of non-UK companies was previously straightforward: they were generally not chargeable to corporation tax. Only UK resident companies paid corporation tax but this changed from 2016 and now there are further occasions when non-UK resident companies will have to pay corporation tax.
New rules will bring non-UK resident companies within the charge to corporation tax for the taxation of rental income in addition to the rules for capital gains connected with UK property. These various rules have different starting dates depending on the activity or the nature of profit or gain concerned. To complicate matters further, directors of non-UK companies will need to take different steps depending on circumstances.
This an important change for the trustees of non-resident trusts that hold UK property through a non-UK resident company.
Non-Resident Capital Gains Tax (NRCGT)
The latest rules for NRCGT came into effect for disposals or transfers of property from 6 April 2019. The position for companies has been made simpler. Previously, a non-UK resident company could be charged to capital gains tax under the ATED-related gains and NRCGT rules or both; each with different reporting deadlines. The new rules charge corporation tax on gains made on the disposal of UK residential property that relate to the period from 6 April 2015 onwards and for non-residential property, gains are charged to tax on any growth from April 2019.
A company must register for corporation tax within 3 months of the disposal, as compared with 30 days within which to file a return under the old rules. Registration can be made online and HMRC will issue the company with a corporation tax reference number to allow it to file returns online. The company will pay tax on property gains at the corporation tax rate rather than 28%, the rate that was payable under the previous ATED related gains regime for some companies and which is still payable for individuals and trusts.
The important point to note is that the directors of the company have a requirement to register for corporation tax and file returns otherwise the company will be charged penalties
Non-Resident Landlord Scheme (NRL)
Non-UK companies that receive rental income from UK property will soon become chargeable to corporation tax. The change will take effect from April 2020. That means companies currently registered under the NRL scheme will need to complete NRL and SA700 returns for 2018/19 and 2019/20 before the first CT return is due.
HMRC stated some time ago that it would be writing to all such companies over the summer of 2019 to advise them of the change and provide a CT reference number. A company will be treated as having notified chargeability to CT, relieving the directors of any separate requirement to notify chargeability to CT if they are already registered for NRL. The company will then be required to submit a CT return within the normal CT deadlines. This will depend on the company’s accounting period; returns must be filed within 12 months of the end of an accounting period.
Helpfully, there are rules that will grandfather any existing income tax losses so that they can be carried across to set against future CT profits from rental income. There will be no deemed disposal of the property for capital gains tax when the company moves from its current income tax basis of assessment to corporation tax and so no claim for incorporation relief will be required.
It appears that directors of non-resident companies can wait for HMRC to take the lead in the transition. However, an important point to note is that the company will come within the corporation tax legislation which includes the loan relationship rules for debts relating to the rental business. This could change the amount of tax paid by a company e.g. interest that is charged on a loan from a related party to purchase a property but is not paid i.e. rolled up, can currently be claimed as a deduction for income tax but will not be allowable for corporation tax under the loan relationship rules. It will be worth looking at the interest costs in any rental business to understand what the consequences will be going forward.
Non-UK property development company
UK property development carried on by a non-UK resident company is now within the scope of corporation tax. HMRC’s guidance is less clear here and simply says you should contact HMRC if you are developing property or land in the UK. This is probably because of the complexities that can arise in the taxation of property development. The actions required by the directors of a non-UK resident company will depend on whether development activity is a trade and if not a trade, whether it is caught by specific anti-avoidance provision such as the Transactions in Land rules. The different treatments could have different commencement dates or income recognition rules.
Directors or trustees of a non-UK resident company or trust should take advice as early as is practicable if they are considering entering into any arrangement that is linked to the building, development or improvement of a property. This is a complex area of taxation on which we advise frequently.