HMRC has published guidance on changes to the rules from April, which will see non-UK resident companies, including those who invest in UK property through collective investment vehicles, pay corporation tax instead of income tax on profits from UK property from 6 April 2020.

A non-resident company will not be required to register for corporation tax and file a company tax return for an accounting period if its liability to corporation tax is fully offset by tax deducted under the non-resident landlord scheme and it has no chargeable gains for that period.

Those in scope will be automatically registered for corporation tax and will be sent a company unique taxpayer reference (UTR), which they should receive by 30 June.

Non-resident companies do not need to register with Companies House unless they have a permanent establishment in the UK.

The guidance states that if a non-resident company has a tax agent or adviser acting on behalf of the company their existing authorisation will not be valid once that company starts paying corporation tax, and the company will need to submit a new authorisation form.

The guidance outlines the transitional rules that will apply when calculating corporation tax.

If the non-resident company’s UK property business is reporting a cumulative loss that is chargeable to income tax, this will be carried forward to its corporation tax, if the business is still continuing at 5 April 2020.

Non-resident companies can offset this loss against future profits from the same UK property business or any non-trade loan relationship profits relating to that UK property business.

The income tax loss cannot be relieved against capital gains where the company may be chargeable to corporation tax.

This type of loss is to be used in priority to any losses made on or after 6 April 2020 under corporation tax.

It is not affected by the restriction to relief for corporation tax losses that arise on or after 1 April 2017. There is no balancing charge or balancing allowance at 5 April 2020.

If the non-resident company has claimed capital allowances under income tax, the capital allowances written down value pooled as at 5 April 2020 will transfer to corporation tax without giving rise to a balancing allowance or a balancing charge.  There is further guidance on the apportionment of written down allowances.

Net taxable profit

The guidance explains that when working out the net taxable profit or loss from UK property, interest and other finance costs are not taken into account for corporation tax. They are worked out separately under loan relationship rules where they will normally be brought into account as a non-trading loan relationship deficit for the period.

In addition, there is a limit to the amount that a company or group can deduct for interest and other financing costs, known as a corporate interest restriction (CIR).

The guidance states it is not possible to claim relief for losses under a loan relationship where the loss refers to a period where the company was not liable to pay corporation tax. This usually happens where a non-UK resident company migrates to be a UK resident company. It also applies to a loss made during in a period in which the company was liable to pay income tax and not corporation tax.

Derivative contracts

Profits and losses from derivative contracts used as part of the UK property business are treated in a similar way to loan relationships. The credit and debit amounts of a derivative contract that have been entered into for the purposes of the UK property business are included in the calculation of the non-trading loan relationship profit or deficit for the period.

Non-resident companies must submit a company tax return online and file company accounts and tax computation. The guidance provides details of how to calculate accounting periods for corporation tax.

A one-off transitional rule will apply so that the instalment for very large companies will not start until the second and next corporation tax accounting periods.

If the company’s only source of UK income after 6 April 2020 is expected to be income from the UK property business, it will not need to make any income tax payments on account for 2020/2021 and future tax years. In such circumstances, any credit balances will be repaid.

The guidance does not apply to non-resident companies which have  tax deducted under the non-resident landlord scheme and are not required to file a tax return; to those starting a UK property business on or after 6 April 2020; or those filing file an income tax return that is not a non-resident company income tax return (SA700).

If the property is suitable for residential use, it may also have to pay annual tax on enveloped dwellings (ATED).

HMRC Guidance Paying Corporation Tax if you’re a non-resident company landlord