Policy paper

Changes to Corporation Tax for non-UK resident companies with UK property income

Published 11 March 2020

Who is likely to be affected

Non-UK resident companies with UK property income may be affected by this measure.

General description of the measure

The changes introduced by this measure are designed to ensure that Finance Act 2019 rules, enacted to bring non-UK resident companies that carry on a UK property business or have other UK property income within the scope of Corporation Tax from 6 April 2020, work as intended.

Policy objective

This measure is designed to ensure a smooth transition of the taxation of UK property profits of non-UK resident companies from Income Tax to Corporation Tax.

Background to the measure

Following announcement at Autumn Statement 2016, the government consulted in March 2017 on options for bringing non-resident companies’ UK property income and gains (previously chargeable to Income Tax and non-resident Capital Gains Tax respectively) into Corporation Tax.

At Autumn Budget 2017, the government published a response document to the consultation and announced that it would make this change for UK property income in April 2020.

Changes to the taxation of non-resident Capital Gains Tax gains were enacted at section 13 and Schedule 1 to the Finance Act 2019 and came into force on 1 April 2019.

Changes to the taxation of the UK property business or other UK property income of a non-UK resident company were enacted at section 17 and Schedule 5 to the Finance Act 2019 and come into force on 6 April 2020.

Detailed proposal

Operative date

The measure will apply to non-UK resident companies on and after 6 April 2020 to align with the commencement date of section 17 and Schedule 5 to Finance Act 2019.

Current law

The current law on the taxation of non-trade loan relationship credits is at section 301(1A) and section 574(2A) Corporation Tax Act 2009 introduced by paragraphs 15 and 18 respectively of Schedule 5 to the Finance Act 2019.

Sections 57 and 272 Income Tax (Trading and Other Income) Act 2005 provide relief for costs that are incurred before the date when the business commences. There is no direct equivalent for financing costs of a non-UK resident company carrying on a UK property business under Corporation Tax.

Regulation 6 to 10 of the Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations 2004 (S.I. 2004/3256) (“the Disregard Regulations”) provide rules to disregard the fair value movements on the certain derivatives that hedge risks of the company, and instead to bring profits and losses into account in line with the hedged risk.

Paragraph 44 of Schedule 5 to the Finance Act 2019 confirms how the Disregard Regulations will apply where companies come into Corporation Tax on 6 April 2020.

The current law on the requirement and duty to notify chargeability to Corporation Tax where all of a company’s income consists of payments on which the company bears Income Tax by deduction is at paragraph 2(1A) of Schedule 18 to the Finance Act 1998 as inserted by paragraph 6 of Schedule 5 to the Finance Act 2019 and at new section 55A of Finance Act 2004 as inserted by paragraph 7 of Schedule 5 to the Finance Act 2019.

Proposed revisions

Legislation will be introduced in Finance Bill 2020 to address the following specific points:

  • section 301(1A) CTA 2009 and section 574 (2A) CTA 2009 are to be replaced by new wording to ensure that these subsections do not limit the taxation of income from non-trading loans and derivatives held in respect of a UK permanent establishments
  • new section 330ZA will be inserted into Part 5 of Corporation Tax Act 2009. It will bring into account in the company’s first accounting period a net amount of financing costs incurred by a non-resident company related to the UK property held before it starts to carry on its UK property business. The amount to be brought in is limited to debits incurred within a period of 7 years before the date on which the UK property business begins and will be net of any relevant credits that arise in that same pre-commencement period. New section 607ZA to be inserted into Part 7 of Corporation Tax Act 2009 makes similar provision for derivative contracts
  • the time limits for electing into the Disregard Regulations are not accelerated solely as a result of the company disposing of an asset where the gain is subject to Corporation Tax. This will be relevant where the disposal occurs prior to the company being within the charge to Corporation Tax in respect of its UK property income
  • paragraph 2(1A) of Schedule 18 to the Finance Act 1998 (as inserted by paragraph 6 of Schedule 5 to the Finance Act 2019) will be amended so that the exception from notifying chargeability is conditional on the tax deducted at source having met the company’s tax liability for that accounting period
  • section 55A of Finance Act 2004 (as inserted by paragraph 7 of Schedule 5 to the Finance Act 2019) will be amended so that the exception from the duty to notify chargeability within three months of the start of an accounting period is conditional on the company having a reasonable expectation that the tax deducted from its income will meet its potential tax liability on that income

Summary of impacts

Exchequer impact

2019 to 2020 2020 to 2021 2021 to 2022 2022 to 2023 2023 to 2024 2024 to 2025
- nil nil nil nil nil

The revisions proposed in this measure are not expected to have an Exchequer impact. The impact figures for the original measure are set out in Table 2.2 of Budget 2020 as ‘Non-resident property income: move from Income Tax to Corporation Tax’ and have been certified by the Office for Budget Responsibility.

More details can be found in the policy costings document published alongside Autumn Budget 2017.

Economic impact

This measure is not expected to have any significant economic impacts.

Impact on individuals, households and families

This measure is expected to have no impact on individuals as it only affects non-UK resident companies with UK property income. This measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

We do not anticipate that this measure will impact on groups sharing protected characteristics.

Impact on business including civil society organisations

The proposed changes under this measure, which are explained above, make additional provision so that non-UK resident company landlords when they move into Corporation Tax from Income Tax are entitled to the same reliefs for pre-trading financing costs and the same time limits for making elections as are available to UK resident companies. All companies of whatever size are provided with clarity on the conditions for notifying chargeability to tax where they have had tax deducted at source from its income.

We do not expect this measure to add to the existing administrative burden of non-UK resident company landlords that are to move from Income Tax to Corporation Tax from 6 April 2020. Customer experience is therefore expected to remain broadly the same.

There is expected to be no impact on civil society organisations.

Operational impact (£m) (HMRC or other)

This measure does not have any operational impact.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be kept under review through communication with affected taxpayer groups.

Further advice

If you have any questions about this change, contact Susan Gardner on telephone: 03000 563 815 or email: susan.m.gardner@hmrc.gov.uk.