Tax changes introduced from 6 April 2020, mean non-UK resident companies, including those who invest in UK property through collective investment vehicles, need to pay Corporation Tax instead of Income Tax on profits from UK property.

Now, more than a year later, landlords are having to get to grips with new rules. The effects are now only just being felt by many non-resident companies as they reach the Corporation Tax return deadline, which is due 12 months after the end of the accounting period it covers, and the Corporation Tax payment deadline, which is nine months and a day after the end of the accounting period.

The new rules ensure that non-resident companies pay Corporation Tax on the profits of UK properties, as well as on profits from loan relationships or derivatives that enable the company to generate the property income.

These profits are dealt with as non-trading loan relationships, rather than as part of the UK property business. Any loan which is not for a trading purpose will give rise to debits (losses) and credits (profits) which are called, respectively, ‘non-trading debits’ and ‘non-trading credits’.

As a result, only the loan relationship debits and credits that relate to the UK property businesses are within the scope of UK Corporation Tax.

If the non-resident company carries on other activities, such as owning properties elsewhere in the world, it will be necessary to stream the relevant UK and non-UK loan relationship debits and credits.

Given this new situation, non-UK resident property businesses must now review their internal accounting systems to ensure the correct amount of interest can be allocated to the UK business, particularly for companies with multiple or complex loan facilities in operation.

Broadly, the rules that apply mirror those that apply to UK-resident companies carrying on a UK property business, but with transitional rules to accommodate the difference in regimes until fully implemented.

Non-resident landlords are subject to the provisions of the non-resident landlords scheme (NRLS). The NRLS has continued to apply to non-UK resident company landlords from 6 April 2020.

Any income tax deducted under the NRLS can be offset against the Corporation Tax liability of the company in respect of that rental income. Landlords are urged to seek expert advice from their accountants on a pressing issue.

For any advice on tax on property transactions and income, please contact us.