Non-UK tax resident companies are currently subject to UK income tax on UK property rental income (either through withholding or by direct assessment) unless the income is in relation to a UK permanent establishment through which they are also carrying on a trade.
From 6 April 2020, all non-UK tax resident companies which carry on a UK property business will be brought within the scope of corporation tax in respect of the profits of that business. There may be differences in the tax rates which will apply. The income tax rate is 20% and the corporation tax rate was expected to reduce from 19% to 17% from April 2020, although this may change .
There will be, amongst other things, additional restrictions on the deductibility of interest (interest capping), deductions related to hybrid mismatches, restrictions on the amount of losses brought forward from earlier periods that can be offset and other provisions relating to the taxation of loan relationships and derivative contracts. In addition, there are late payment restrictions which can apply where interest is not paid within 12 months of the year end to certain connected recipients.
Since profits of a UK property business (for corporation tax purposes) do not take into account debits or credits from loan relationships or derivative contacts, a non-UK tax resident company which carries on a UK property business will also be chargeable to corporation tax in respect of its debits or credits that arise from loan relationships or derivative contracts that the company is a party to for the purpose of that business.
Taxing non-UK tax resident corporate landlords on the same basis as their UK tax resident counterparts has been the main driver for the change. There are transitional provisions which, amongst other things, ensure that there is no disposal event for capital allowances purposes, no double counting of income or expenses, and ‘grandfathering’ of unutilised income tax losses that can be offset against UK property business profits subject to corporation tax.