Non-resident UK companies must pay corporation tax on property income

HMRC has issued guidance on rule changes from April which will see non-UK resident companies, including those investing in UK property through collective investment vehicles , pay corporation tax instead of income tax on profits from UK immovable property from 6 April 2020.

A non-resident company will not be required to register for corporation tax and file a corporation tax return for an accounting period if its corporation tax liability is fully offset by the tax deducted under the non-resident owners regime and that she has no taxable earnings for that period.

The persons concerned will be automatically registered for corporation tax and will receive a unique corporate tax reference (UTR) which they should receive before June 30.

Non-resident companies do not need to register with Companies House unless they have a permanent establishment in the UK.

The guidelines state that if a non-resident company has a tax agent or adviser acting on behalf of the company, their existing authorization will not be valid once that company starts paying corporation tax, and the company will have to submit a new authorization form.

The guidelines describe the transitional rules that will apply when calculating corporation tax.

If the non-resident company’s UK property business declares a cumulative loss chargeable to income tax, this will be carried forward against its corporation tax, if the business is still in operation on 5 April 2020.

Non-resident companies can offset this loss against future profits from the same UK property business or from profits from a non-commercial loan relationship linked to that UK property business.

The tax deficit is not deductible from capital gains where the company may be subject to corporation tax.

This type of loss is to be used in priority over any losses realized from April 6, 2020 for corporation tax.

It is not affected by the restriction on the relief of corporate tax losses arising on or after April 1, 2017. There is no balance charge or balance allowance as of April 5, 2020 .

If the non-resident company has claimed allowances for income tax, the value of the amortized allowances pooled on April 5, 2020 will be transferred to corporation tax without giving rise to any allowance or charge. balancing. There are other indications on the distribution of the depreciated allowances.

Net taxable profit

The guidelines explain that when calculating the net taxable profit or loss of property in the UK, interest and other finance charges are not taken into account for corporation tax. They are calculated separately according to the rules of the loan relationship where they will normally be taken into account as the deficit of the non-commercial loan relationship for the period.

In addition, there is a limit to the amount a company or group can deduct for interest and other finance charges, known as the corporate interest restriction (CIR).

The guidance states that it is not possible to claim relief for losses in a loan relationship where the loss relates to a period when the company was not subject to income tax. companies. This usually happens when a non-UK resident company migrates to become a UK resident company. It also applies to a loss realized during a period when the company was liable for income tax and not corporation tax.

Derivative contracts

Gains and losses from derivative contracts used in the UK property business are treated in the same way as lending relationships. The credit and debit amounts of a derivative contract entered into for the purposes of the UK real estate business are included in the calculation of the profit or loss of the non-commercial lending relationship for the period.

Non-resident companies must submit a corporate tax return online and file company accounts and tax calculation. The guide provides details on how to calculate accounting periods for corporation tax.

A unique transitional rule will apply so that the installment for very large companies does not start until the second and next corporate tax accounting year.

If the company’s sole source of UK income after 6 April 2020 is expected to be from the UK property business, it will not need to make income tax payments for years tax 2020/2021 and future. In such circumstances, any credit balance will be refunded.

The guidelines do not apply to non-resident companies whose tax is deducted under the non-resident owners regime and which are not required to file a tax return; to those starting a property business in the UK on or after April 6, 2020; or those filing a tax return that is not a non-resident company tax return (SA700).

If the property is suitable for residential use, it may also be liable for the annual Wrapped Dwellings Tax (ATED).

HMRC Guidance Paying Corporation Tax if you own a non-resident company

Luisa D. Fuller