Earlier this month an important change to the taxation of income received by non-UK resident landlord (“NRL“) companies was introduced. Since 6 April 2020, NRL companies have been subject to corporation tax (at a rate of 19%) on their UK rental income. Before this date, this income was subject to income tax (at a rate of 20%).
Which companies should register for corporation tax?
If NRL companies previously paid income tax on their rental income under HMRC’s Non-Resident Landlord scheme, this scheme will continue to apply. Consequently, they do not need to register for corporation tax (nor file a company tax return). New NRL companies will be able to register under the NRL scheme. In both cases, this is provided the following qualifying conditions are both satisfied by a NRL company during any accounting period:
- their liability to corporation tax is fully offset by the tax deducted under the NRL scheme; and
- they have no chargeable gains.
In practical terms most NRL companies registered under the NRL scheme are likely to satisfy these conditions.
When does a NRL company need to register for corporation tax?
Where a company does not it will be fully within the scope of the corporation tax regime. They should now have received a Company Unique Tax Payer Reference (UTR) and have been automatically registered for corporation tax by HMRC.
New NRL companies (which do not register under the NRL scheme or do register but do not meet the above conditions) will need to register with HMRC for corporation tax on establishing their UK property business on or after 6 April 2020 and within three months of first becoming chargeable to corporation tax.
As before, companies can appoint agents to deal with their registration for corporation tax and ongoing HMRC compliance. Existing agency authorisations are not carried forward. Consequently all NRL companies who wish their existing agents to continue to act on their behalf will need to put new agent authorisations in place.
What are the practical implications of these changes?
Transitional rules deem a NRL company’s trade to cease (for income tax purposes) on 5 April 2020 and start on 6 April 2020 (for corporation tax purposes). HMRC need to be notified in writing where a NRL company’s accounting period does not coincide with these dates.
Although the headline tax rate will be lower (19% rather than 20%), the corporation tax code contains provisions restricting the deductibility of expenses that would have otherwise been deductible for income tax purposes, and in fact a NRL company’s liability under the corporate tax regime may be higher.
What if a NRL company has chargeable gains during an accounting period?
Chargeable gains might arise because a NRL company has sold a UK property at a gain during an accounting period. Readers are likely to already be aware that chargeable gains made by NRL companies have been subject to corporation tax since 6 April 2019.
Realising chargeable gains will take a NRL company outside of the scope of the NRL scheme because it will fail to satisfy the second qualifying condition for that accounting period. As a consequence a NRL company which realises a gain from the sale of a property will have to register to register for corporation tax and complete a company tax return for the relevant period. Corporation tax calculated on the gain will be payable by reference to the company’s accounting period and its size.
For more information on these changes and how these might impact particular NRL companies please contact Michael Ridsdale, Matt Braithwaite or your usual Wedlake Bell contact.