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The UK property tax landscape has changed dramatically in the last few years, particularly for nonresident landlord companies.
Previously, rental income received, net of costs was charged to income tax and capital gains were excluded from the charge. However, this position was changed in 2015 so that any gains on such properties were now chargeable to UK tax under the Capital Gains Tax legislation.
At the same time, the Government implemented a new rule which made it a requirement to notify HMRC of any sale within 30 days of the conveyance.
Subsequently, in April 2019, capital gains made by non-resident landlord companies are now subject to Corporation Tax rather than Capital Gains Tax. This move by the Government acted to treat offshore companies selling property the same way as UK resident companies.
In its continued attempts to recover any gains made on UK properties by overseas investors and streamline the tax treatment, the Government has amended legislation so that, 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 will mean that profits from UK property income will become chargeable to Corporation Tax and will be calculated under ordinary Corporation Tax principles as set out in CTA 2009 and Corporation Tax Act 2010 (CTA 2010).
This move will affect non-UK resident companies that carry on a UK property business either directly, or indirectly through a tax transparent collective investment vehicle.
The Government has also confirmed a transitional provision in respect of existing UK property businesses carried on by a non-UK resident company so that the change from Income Tax to Corporation Tax will not constitute a disposal event under the Capital Allowances Act 2001.
Income will, therefore, neither be taxed twice nor fall out of account. Furthermore, it will ensure that an expense is only relieved once.
This will allow for the grandfathering of existing Income Tax losses so that it will be possible to carry them forward to the Corporation Tax regime.
The UK Government believes that this will deliver more equal tax treatment for UK and non-UK resident companies in receipt of similar income, as well as preventing companies and individuals that use this difference to reduce their tax bill on UK property through offshore ownership.
