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Finance Act 2019 introduced new rules transforming the UK tax regime for non-resident corporate landlords. From 1st April 2020, there will be a transition from the current income tax regime to the corporation tax regime.
As outlined in previous articles, in recent years the advantages available to non-resident landlords (NRLs) have been eroded, following the introduction of capital gains tax on disposals of commercial property since 1st April 2019, the next change to be implemented is the transition from the income tax regime to the corporation tax regime.
Although this change brings a slight reduction in the rate of tax charged with profits under the current regime are subject to an income tax rate of 20% and the rate of corporation tax is currently expected to remain at 19%, there are a number of changes that need to be considered.
Corporate interest restriction
Where net interest expenses are in excess of £2 million (per group) the expenses can be restricted to up to 30% of the NRLs’ taxable profits; there are some exemptions. The legislation in this area is complex and advice should be taken by highly leveraged NRLs and those with shareholder debt.
The Hybrid Mismatch Rules cover entities or financial instruments that are treated differently in the relevant jurisdictions. Where these rules apply, certain payments may be disallowed for UK corporation tax purposes. All structures should be reviewed.
Corporate loss restriction
Losses incurred after 6th April 2020 will be subject to an annual utilisation limit of £5 million plus 50% of any profits remaining.
Losses incurred to date
Any UK property business losses accrued to 6th April 2020 will be transferred to the corporate regime and available to offset against future property income only but will not be subject to the above restriction.
As with losses, capital allowances will also be transferred at the tax written down value.
New filing regime
NRLs will be required to electronically file a Company Tax Return (form CT600s) accompanied by iXBRL tagged accounts.
The first filing will cover the period from 6th April 2020 to the end of the accounting period and will need to be filed within 12 months of the accounting period end date. Income and expenses will need to be apportioned to this period.
Tax payment due dates differ under corporation tax rules and are determined on the basis of the company’s accounting period dates rather than the fixed 31st January deadline under the income tax regime. Companies with profits below the £1.5 million have a single payment deadline of 9 months and 1 day after the accounting period end. Companies with taxable profits in excess of £1.5 million will need to pay tax in quarterly instalments, which fall based on the accounting period end date.
HMRC have confirmed their intention to issue new UTR numbers to all NRL corporates before April 2020, for use on CT600 forms. However, NRL corporates will still need to register online for corporation tax with HMRC even where companies have already registered under the Non-Resident Landlord scheme.