By Neil Driver, Director at Davis Grant
Non-resident landlords are, for the first time, having to get to grips with new rules regarding Corporation Tax that were introduced more than a year ago.
All non-UK resident companies have been chargeable to Corporation Tax rather than to income tax on profits of a UK property business and ‘other UK property income’ since 6 April 2020.
The new rules ensure that non-resident companies are chargeable to Corporation Tax on the profits of UK properties, as well as on profits from loan relationships or derivatives that enable the company to generate the property income.
These profits via loan relationships and derivatives are dealt with as non-trading loan relationships, rather than as part of the UK property business.
As a result, only the loan relationship debits and credits that relate to the UK property businesses are within the scope of UK Corporation Tax.
If the non-resident company carries on other activities, such as owning properties elsewhere in the world, it will be necessary to stream the relevant UK and non-UK loan relationship debits and credits.
Given this new situation, non-UK resident property businesses must now review their internal accounting systems to ensure the correct amount of interest can be allocated to the UK business, particularly for companies with multiple or complex loan facilities in operation.
Broadly, the rules that apply to non-resident companies from 6 April 2020 mirror the existing regime that applies to UK-resident companies carrying on a UK property business, but with transitional rules to accommodate the difference in regimes until fully implemented.
Non-resident landlords are subject to the provisions of the non-resident landlords scheme (NRLS). The NRLS has continued to apply to non-UK resident company landlords from 6 April 2020.
Any income tax deducted under the NRLS can be offset against the Corporation Tax liability of the company in respect of that rental income.
The rules differ significantly from those enforced before 6 April last year. Under the old rules, non-resident landlords were subject to income tax on UK property rental income. Non-resident companies were subject to a flat rate of income tax (20 per cent) on the rental income.
Depending on the level of the income, non-resident individuals were subject to tax at the default income tax rates of 20 per cent, 40 per cent or 45 per cent.
Although the rules have already been in place for more than a year, they are now only just being felt by many non-resident companies as they reach the Corporation Tax return deadline, which is due 12 months after the end of the accounting period it covers, and the Corporation Tax payment deadline, which is nine months and a day after the end of the accounting period.
Given the significance of these changes and the impending deadline for Corporation Tax returns and payments, non-resident landlord companies should seek advice at the earliest opportunity. To find out how our experienced team can assist you, please contact us.