There have been important changes that have come in to place for non-resident landlord companies from 6 April 2019 and there are further changes that will impact these companies from 6 April 2020. We have summarised the changes that will affect these companies.
Changes from 6 April 2019
Prior to 6 April 2019, non-UK-residents (companies and individuals) were only subject to capital gains on disposals of residential properties. However, from 6 April 2019, all UK property will be subject to tax on capital gains arising. In addition, all Non-Resident UK-Companies are now subject to Corporation Tax rather than Capital Gains Tax.
HM Revenue & Customs (HMRC) must be notified within three months from the date of disposal and any late notification can be subject to penalties.
A Corporation Tax Return (CT600) will need to be prepared to report capital gains arising, on which corporation tax will be due. For the tax year ending 5 April 2020, the accounting period will be one day long, which will be the date of disposal. There is no requirement to report transfers of property which takes place at no gain/no loss. The normal Corporation Tax filing deadlines apply meaning that returns will be required to be filed 9 12 months after the end of the accounting year which for 2019/20 will be 5 April 2021 with any corporation tax due 9 months and 1 day after i.e. 6 January 2021.
If the company sells four or more properties, a full 12 month accounting period will exist for the various disposals.
A CT600 will be used to report the capital gains and, in addition, a non-resident Income Tax return (SA700) will be completed to report any UK rental income from the investment properties until 5 April 2020.
Rules implemented on 5 April 2015, which brought in to charge UK residential properties, allowed the purchase value to be rebased to the value at 5 April 2015. As commercial properties only came within the charge to tax from 6 April 2019, the value of commercial properties may be rebased to the value as at 5 April 2019. Therefore, it is sensible to obtain a valuation as at 5 April 2019 of all commercial property held by the company.
Changes from 6 April 2020
Non-UK resident companies receiving property income will no longer be subject to Income Tax, which is reported on the SA700. The income post 6 April 2020 will be reportable on a Corporation Tax return (CT600).
Companies with self-assessment reference numbers are expected to transition into the Corporation Tax regime with HMRC issuing a Corporation Tax UTR. HMRC is due to write to companies in February 2020 to inform them of the changes, including details of the Corporation Tax UTR to file Corporation Tax returns. Any unused Income Tax losses will be carried forward for Corporation Tax purposes.
The above changes mean that all income and gains from 6 April 2020 will be reported on a Corporation Tax return. Non-resident companies will only need to complete one return per period (maximum 12 months) to report capital gains/losses and rental profits/losses in the year, which will be subject to tax at the prevailing Corporation Tax rates.
Clarification points
HMRC are still in the process of clarifying the legislation changes as at 6 April 2020. We have outlined some of the changes below which may impact your company:
Corporation Tax rules
The Corporation Tax rules, including the corporate interest provision and other anti-avoidance provisions, will apply. In particular, the loan relationship rules limit the deduction of interest paid to connected parties by deferring the deduction of the expense if it has not been paid within 12 months of the end of the Corporation Tax period and not been taxed on the lending party. Under the Income Tax rules, a deduction may have been allowed for any “rolled up” interest, however, this will not be the case under Corporation Tax rules. Therefore, we advise that all loans are reviewed, and careful planning is undertaken prior to 6 April 2020 as the potential non-deduction will have an impact on the level of profits subject to Corporation Tax.
iXBRL accounts
At the time of this article, we understand that tagged (iXBRL) accounts will need to be submitted along with the Corporation Tax return. HMRC is still required to provide clarification on this point as this would potentially require foreign jurisdiction accounts to be submitted with the Corporation Tax return. We also await clarification on whether the accounts are a separate set of accounts stating only UK rental business income as would be expected or if instead, HMRC insists on full accounts which state the worldwide income of the company. If full company accounts are required, they may need to be tagged in the iXBRL format to allow them to be submitted.
Accounting periods after transition year
It is anticipated that HMRC will default the first period to end on 5 April 2021. However, non-resident company accounts are likely to have a different year-end date. Companies wishing to align their year-end with the corporation tax period will be required to contact HMRC to change their default Corporation Tax period to align with their accounting year-end. Further guidance concerning this is expected to be released early next year.
Other UK income
Other UK income earned by the non-resident company is expected to fall within the Corporation Tax regime and follow the UK corporation tax rules. Therefore, any other UK income earned by the non-resident company will be reportable on a CT600.
These changes are somewhat complicated and may give a number of companies cause for concern. In addition, much of the information available at the present time is based on HMRC current guidance and is likely to change. If you are concerned that you may be affected by any of the changes above and would like to discuss further, contact our tax team at Grunberg & Co and we will be happy to assist.
