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HMRC internal manual

Property Income Manual

Rent from property outside the UK: CT cases

General

The rules for the taxation of income of companies from overseas let property assessable is chargeable to CT as property income.

Overseas property business

Income from ‘an overseas property business’ is defined in CTA09/S206.

Trading

Where the company is in receipt of income from more than one overseas property all those properties jointly constitute a single overseas property business of that company. This is the same approach which applies to the overseas property income of individuals within the charge to IT. However, where there is a claim to tax credit relief where the overseas income has suffered foreign tax please refer to the guidance below.

Losses

As part of the changes made by FA95, the taxable profits and losses of overseas let property were ring fenced for IT purposes. The effect was that:

  • losses of an overseas property business cannot, for IT purposes, be set against profits of a UK property business carried on by the same individual,

  • similarly, losses of UK property business cannot for IT purposes be set against profits of an overseas property business carried on by the same individual.

The ring fencing of overseas property losses has been carried through to the new rules for companies but the ring fencing of overseas property profits has not. The effect is as follows:

  • losses of an overseas property business can only be set against future profits from that overseas property business and cannot be set against profits of a UK property business or any other profits of the company whatsoever (CTA09/S66)
but
  • losses of a UK property business can be set against profits of an overseas property business (CTA09/S62).

Two other features of the loss provisions should be noted:

  • Previously, there was no statutory authority for allowing losses on overseas property to be carried forward. Loss relief was given by ESC/B25. Any relief for losses due under ESC/B25 which is unused at 1 April 1998 may be carried forward and set against profits of the overseas property business.

  • CT Schedule A losses of an overseas property business may only be carried forward where a company carries on a overseas property business on a commercial basis or in the exercise of statutory functions as defined at CTA09/S67.

Credit for foreign tax

If the overseas income has suffered foreign tax and a claim to tax credit relief is made, it will be necessary, for the purposes of the source by source rule (see INTM161210) to identify the amount of UK tax attributable to income from each particular property. Where, therefore, tax credit relief is claimed separate computations of profits and losses for each property will be required. For the purposes of calculating tax credit relief, losses should be deducted in the order most favourable to the company’s claim. Normally this will mean that losses should be allocated first against the source which has suffered at the lowest rate of foreign tax.