From 6 April 2020, non-resident companies deriving income from UK property will no longer be subject to income tax, but corporation tax. The change is intended to bring non-resident companies into line with UK resident companies also receiving UK property income and it’s an area we’re advising on more frequently.
Aside from the different tax rates (corporation tax is 17% from April 2020, income tax 20%), non-resident companies will be brought into the UK corporation tax regime, which includes a higher degree of compliance, such as
- the need to submit an annual corporation tax return and
- complete corporate interest restriction returns
However, the most significant impact of the changes is likely to be on highly geared companies as the amount of tax relief on interest deductions will be severely restricted.
What are the other changes from April 2020?
Carried forward losses will be restricted, potentially causing chargeable profits to increase which may in turn affect cash flow. We therefore urge companies to consider their cash flow positions to ensure adequate measures are taken to redress any shortfall.
Larger non-resident companies may need to start paying tax via quarterly instalments, adding extra compliance and cost.
Some good news though – land remediation relief is available for expenditure after April 2020 made by non-resident landlords, potentially resulting in a cash refund.
What steps should be taken by non-resident landlords affected?
- Administration – ensure all relevant non-resident companies have registered for corporation tax with HMRC and that all agents (including your accountant) are registered to act for the new company.
- Budget – there will be costs for submitting both an income and corporation tax return for the first year so extra funds should be put aside
- Interest deductions – as tax relief on such deductions will be restricted, consider capitalising loans
There are only 6 months until the changes take effect and we urge non-resident companies to consider their positions now in order to make any necessary changes.