From 6 April 2020 non-resident companies which own UK property were required to start paying corporation tax (CT) rather than income tax on their profits from rents. ICAEW’s Tax Faculty advises corporate NRLs and their agents to carefully consider HMRC’s latest guidance and how it might apply to their portfolio, including any increased compliance requirements.

Transfer of UK property by non-resident company

HMRC’s guidance states that non-resident companies will not have to register for corporation tax and file a company tax return for an accounting period if the liability to corporation tax is fully offset by tax deducted under the non-resident landlord scheme and it has no chargeable gains for the period.

This means that non-resident companies which dispose of UK property could come into the UK corporation tax net for the first time if they previously met this exemption above. However, HMRC states that companies do not have to register if any of the following apply:

• the disposal is an excluded disposal;
• an exemption applies; or
• no chargeable gain or allowable loss arises.

Examples include:

• no gain or no loss transfers;
• a disposal where no gain arises because sales proceeds equal the acquisition cost; and
• the substantial shareholding exemption applies to a disposal.

Companies are advised to contact HMRC’s non-resident landlords team in writing if they believe that in periods subsequent to the disposal they will qualify for the exemption from filing a CT return. This is because the default position is that notices to file a CT return will be delivered by HMRC in later periods and financial penalties could apply if the return is not submitted when requested.

Use of losses by overseas companies with a UK property business

Where losses arose prior to 6 April 2020, when the corporate NRL was subject to the income tax regime, the loss will be carried forward to the CT regime and it can be used from 6 April 2020 in the same way as before.

HMRC states that: “You can offset this loss against future profits from the same UK property business or any non-trading loan relationship profits relating to that UK property business without restriction, but the income tax loss cannot be relieved against capital gains.

“Losses brought forward from the income tax regime are to be used in priority to any losses made on or after 6 April 2020 under the corporation tax regime. This type of loss is not affected by the restriction to relief for carried-forward corporation tax losses that applies from 1 April 2017.”

The guidance also highlights that property income losses which accrue under the CT regime (post 6 April 2020) can be used more flexibly including group relieved and/or set against total profits.