Non-resident company landlords - the changes from 6 April 2020

05 March 2020

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Non-resident company landlords - the changes from 6 April 2020

In December 2019, we summarised recent and forthcoming changes to the taxation of UK property held by non-residents. The changes include the taxation of rental income received by non-resident corporate landlords under corporation tax instead of income tax, with effect from 6 April 2020.

HMRC recently published updated guidance, and details of proposed changes to the Non-resident Landlord Scheme regulations, which include the following points:

  • A non-resident company will not be required to register for corporation tax and file a company tax return for an accounting period if:
    • Its liability to corporation tax is fully offset by tax deducted under the Non-resident Landlord Scheme, and
    • It has no chargeable gains for that period.
  • HMRC will automatically register affected companies for corporation tax and will send them a company Unique Taxpayer Reference (UTR). However, (despite much lobbying by the professional bodies) it will not copy this correspondence to existing agents (so as not to breach taxpayer confidentiality, as it would involve copying income tax correspondence to agents on matters relating to corporation tax, for which they are not the registered agent). Agents should therefore ask clients to forward correspondence from HMRC, including the UTR, to enable them to file a new 64-8 form.
  • Normal corporation tax rules will apply, so an accounting period no longer needs to end on 5 April. Companies currently filing non-resident income tax returns will be invited to notify HMRC of the date to which they will be preparing corporation tax returns, if not 5 April.
  • Letting agents of non-UK resident company landlords will be able to make an irrevocable election for an alternative rule to the Corporate Interest Restriction, if they have paid financing costs or directed another person to pay such costs. Under the alternative rule, the deduction for any financing costs is limited to a fixed allowance of 30% of the UK rental income net of deductible expenses other than financing costs. Any unused allowance may be carried forward from one quarter period to the next, and any unused financing costs above the allowance may also be carried forward.
  • Income tax losses will be carried forward for use under corporation tax.
  • Capital allowances written down value pools as at 5 April 2020 will transfer to corporation tax without giving rise to a balancing allowance or a balancing charge.
  • If a credit balance remains in a company’s income tax account after all income tax liabilities for 2019/2020 and earlier years have been settled, this will be repaid to the company if its only source of UK income from 6 April 2020 is income from UK property. The company’s UK bank details will need to be provided, and the box on the 2019/2020 Non-resident Company Income Tax Return ticked, to enable a repayment to be made.
  • The guidance does not apply to companies that:
    • Have tax deducted because they are not registered under the Non-resident Landlord Scheme and are not required to file a tax return,
    • Start a UK property business on or after 6 April 2020, or
    • File an income tax return that is not a Non-resident Company Income Tax Return (SA700).

For further information, or for assistance, please contact Chris Holmes.

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