27 03 2017

UK Rethinking Tax On Overseas Property Investors

The UK is considering bringing certain non-resident companies within the scope of corporation tax where they have existing UK taxable income and/or gains from the disposal of certain UK residential property interests.

The Government has released a consultation on the proposals, seeking feedback in particular from companies, advisers, and representative bodies potentially impacted by the change.

According to the Government, the proposal is a result of issues identified in recent corporation tax reforms such as interest restriction and loss reform, as well as the planned reductions in the corporation tax rate.

According to the consultation, the proposals have been put forward because introducing interest restriction and loss reform for non-resident companies by amending the income tax rules would involve significant changes and the use of concepts and approaches which, while established in the corporate tax code, are not mirrored in the income tax regime.

It reported that responses to the consultation on the proposed corporate interest restriction suggested that applying the corporate interest restriction rules to nonresident corporate landlords within the income tax regime would require careful consideration, because very different rules apply when calculating interest expense and other financing costs for the purposes of each tax. For these reasons, the Government has recommended that a better option for this category of income is to consider the case for moving income from UK real property into the CT regime.

"The government recognizes that this would be a fundamental change to the taxation of the majority of non-resident companies who currently file self-assessment returns. However, this change would ensure that the taxation of income from UK real property is consistent," it said.

In recent years, the taxation of non-resident companies in respect of UK real property has changed significantly. For instance, a non-resident company was not liable to UK tax on non-trade gains until the introduction in April 2013 of Annual Tax on Enveloped Dwellings related capital gains ("ATED-related gains"). In April 2015, gains in respect of the disposal of UK residential property interests by certain non-residents, including closely-held non-resident companies, became chargeable to non-resident Capital Gains Tax ("NRCGT"). More recently, the Finance Act 2016 introduced legislation to bring non-resident companies which carry on a trade of dealing in or developing UK land into the CT regime.