According to the new norms, non-resident corporate landlords will only be required to file an income tax return of SA700 for the tax year 2019/20 by 31st January 2021. After that, they will be considered a part of the corporation tax regime. It is pertinent to note here that offshore companies that hold property in the UK have been taxed for a long time in a different manner to UK companies. This article sheds light on the new reforms for non-resident corporate landlords.
Tax Treatment Difference Between UK Companies & Offshore Companies Holding Property In The UK
Capital Gains Tax
Earlier, the fundamental disparity was that offshore companies were not required to pay any tax on capital gains when it came to selling UK property. On the other hand, UK companies had to pay capital gains tax on the same. This changed portions. First, it changed in April 2015 for residential properties and then in April 2019 for commercial properties, meaning offshore companies are now required to pay tax on gains derived from selling all land and buildings in the UK. Here is good read on Capital Gains Tax (CGT) Changes You Must Know About
Corporation Tax Versus Income Tax
The second most significant difference lies in the fact that offshore companies that rent out their UK properties are also subject to pay income tax on all their profits. However, they were not liable to pay corporation tax on the same. From 6th April, 2020, this rule will be changing, and the alignment of tax treatment that exists between the UK and offshore companies will be completed.
In this regard, the new rules, as well as their implications, are discussed below.
Non-Resident Landlord Companies Move To Corporation Tax
The taxation year 2019/20 will be the penultimate year in which non-resident corporate landlords shall be required to file their SA700 income tax returns. Starting 6th April, 2020, all such companies will be required to file their corporation tax returns instead. This involves a different set of tax rules, administrative burden and transitional arrangements.
New Rules & New Regime
When it comes to smaller companies, this new move to corporation tax from income tax is expected to be beneficial. In addition to that, there is expected to be a drop in the existing tax rates to 19% corporation tax from 20% income tax. Moreover, the payment of corporation tax will be much easier as only one payment will be due every nine months once the year ends. That said, large companies might have to follow the more complicated regime of quarterly installments. Furthermore, companies that have major finance costs (more than £2M yearly) will also have to follow the restriction rules of corporate interest.
Financing costs will also no longer be deductible for property business expenses. On the contrary, non-resident corporate landlords will be entering into the derivative contract and loan relationship regimes. Furthermore, the losses that have been brought forward will be set off in full only against the initial profits of £5M in a specific year. In the same vein, profits that are more than this amount will be relieved only by up to 50% with the usage of losses that have been brought forward. It is also noteworthy that there is no restriction when it comes to the losses of income tax.
It is pertinent to note here that the existing losses on income tax will be preserved when the switch is made to corporation tax. In addition to that, they can still be set against profits that appear under the regime of corporation tax. That said, they will still be considered as income tax losses. Therefore, their use in the future against profits shall not be restricted, as mentioned above.
When it comes to compliance, non-resident corporate landlords will be required to file an income tax return of SA700 for the year that ends on 5th April, 2020 by January 31st, 2021. Thereafter, they will be a part of the corporation tax regime. Currently, HMRC is writing to non-resident landlord companies so as to inform them regarding this change. They will also be informing them about the issuance of a UTR of a Unique Tax Reference for corporation tax.
In addition to that, for the year that ends on December 31st, 2020, non-resident corporate landlords will be required to:
- File an income tax return of SA700 by January 31st, 2021 as well as pay their final payment of income tax for the period January 1st, 2020 to April 5th, 2020
- File a return of corporation tax by December 31st, 2021 as well as pay their corporation tax by October 1st, 2021 for the period April 6th, 2020 to December 31st, 2020
Once these companies are in the regime of corporation tax, all non-resident landlord companies shall be required to produce iXBRL-tagged accounts. This will be for their submission along with the corporate tax return.
New norms and legislations are always tricky as they need to be complied with. In case you still have queries, reach out to us at