UHY Ross Brooke Chartered Accountants

New Taxation Rules for Non-UK Resident Corporate Landlords

Why does this matter?

For UK property rental business profits arising after 5 April 2020 to a non-UK resident corporate landlord (“NRCL”)then that company must pay UK corporation tax on those profits, rather than income tax. 

The existing UK income tax registrations, which would facilitate the payment of income tax from abroad are now superseded by a mandatory UK corporation tax registration – the required corporate tax returns can only be filed online. The payment of corporation tax on rental profits can only be executed online. Clearly if you are an NRCL then you need to have the appropriate UK registrations in hand, such that you can make the required corporation tax filings and payments.

Exemptions

One exemption is that if you have a UK HMRC Registration under the Non-Resident Landlord Scheme and you are content to receive UK rents net of basic UK tax (20%), with no relief for allowable expenses against your UK rental profit, then you can continue to operate under the NRLS and do so without the need for UK CT registration.

When?

If you have an existing UK property rental business then you should have received a corporation tax Unique Taxpayer Reference number directly from HMRC. It was projected that all such UTRs would be issued before 30 June 2020 but because of COVID 19 there may now be some delay. If you have not received the number by 30 June 2020 then you should contact HMRC (or, if we are instructed, ask us to speak with HMRC).  It is important that you receive this number and then notify HMRC if the company accounting date for NRCL is not 5 April – if not HMRC will set a wrong (default) date for your corporation tax account.

Your final UK income tax return for property business income will be 2019/2020, due for filing (typically manually) by 31 January 2021, together with the final payment of income tax.

Your first UK corporation tax return for the property business income will commence 6 April 2020, end on your accounting reference date, and be due to be filed online (mandatory) no later than 12 months after accounting reference date. Any corporation tax due must be paid to HMRC online by 9 months and 1 day after your accounting reference date.

For new UK property rental businesses commencing after 5 April 2020 by a NRCL, then they must notify HMRC of chargeability to UK corporation tax within 3 months of commencement.

Note

These income tax and corporation tax obligations do not replace the annual filing and payments required under the UK Annual Tax on Enveloped Dwellings (“ATED”) regime.

As a payer of UK corporation tax, the NRCL may be entitled to land remediation relief.

If you are subject to these new UK corporation tax rules on property income, please take appropriate action now.  We have presented a sample “to do list” and example of the tax transition on the next page. And of course to discuss any of this, or indeed the capital gains or inheritance tax consequences, please call your usual tax contact here at Ross Brooke, Phil Kinzett-Evans on 01635 555666 or David Jones on 07922 425173.

Steps to take (please read all – they are not in chronological order for some clients)

  1. If you wish Ross Brooke to assist then we will need a new mandate (Form 64-8) to do so – HMRC will not accept existing income tax mandates!
  2. Once you have the new CT UTR, enter HMRC Online website and register for CT Online.
  3. Acquire suitable software for preparation and filing of a UK corporation tax return – HMRC’s free CT tool will not be available for CT returns for NRCL.
  4. Use the software to prepare a UK compliant CT return in good time for the UK tax filing deadline.
  5. Working from your accurate final income tax return for 2019/2020 compute the income tax due and payable for period up to 5 April 2020 and ensure this is paid by 31 January 2021.
  6. Working from your accurate corporation tax return compute the corporation tax due and payable for period after 5 April 2020 and ending on your accounting reference date and ensure this is paid electronically within 9 months and 1 day of your company accounting reference date.
  7. Check if the company is required to file its UK CT return with a set of machine readable accounts – typically this is required, but it depends on what accounts the local jurisdiction requires, a relaxation, permitting pdf accounts, may be available.
  8. Collate the final, authorised UK corporation tax return, accounts and supporting papers and file electronically with HMRC Online.
  9. Make UK CT payment (online)
  10. Ensure that you notify HMRC early if any pre-notified income tax payments on account for 20/21 on 31 January 2021 and 31 July 2021 – your income tax liabilities will likely be lower than would otherwise be estimated because of the allocation of part of the profits to corporation tax.

Example

ABC (Offshore) Co has established profitable UK property rental business with 30 June year end, so accounting reference date straddles 5 April 2020. Apportioning results for year ended 30 June 2020, the income and expenses for the period (approx. 9months) to 5 April 2020 give a profit of £40,000 (income tax rules).  The income and expenses for the remaining (approx.) 3 months to 30 June 2020 give profits of £18,000 (corporation tax rules).

ABC (Offshore) Co must prepare its final UK self- assessment income tax return for 2019/2020 starting with £40,000 property income profits and file this (typically manually) with HMRC by 31 January 2021. The outstanding balance of income tax is also due no later than 31 January 2021.

ABC (Offshore) Co must prepare its first corporation tax return for the period 6 April 2020 to 30 June 2020 and file this return online, with all required supporting documentation by 30 June 2021.  The company must pay the corporation tax arising on the property income profits of £18,000 by 1 April 2021.

Please note this document and example makes very simple assumptions, for instance it does not accommodate the complexities of the company being a member of a corporate group; nor does it account for ABC (Offshore) Co being a large company and so eventually subject to quarterly instalments of corporation tax, nor of it having any UK income or gains other than the property income, nor the ability to claim foreign tax credit reliefs or to be subject to permanent establishment or property development UK-anti-avoidance law. 

You may also wish to read about UK Tax residency issues and cross border working

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