There will be a consultation on bringing non-resident companies receiving taxable income from the UK into the corporate tax regime. It was announced by Philip Hammond, the Chancellor of the Exchequer in his Autumn Statement and is due to open in Spring 2017.
Who is affected?
This would affect;
- non-resident companies receiving UK taxable income not through a permanent establishment in the UK or
- non-resident companies receiving rental income from investment property in the UK.
The stated purpose is to deliver equal treatment for all companies.
Clearly we will need to await further details to understand what is being proposed.
Pros and Cons
On the one hand, bringing non-resident companies into the corporate tax regime will reduce their tax rate from 20% to 17% in the medium term. There may also be increased scope to claim certain expenses of running the company rather than limiting expenses to those related to the property rental activity.
However, on the negative side, two new rules are being introduced for corporation tax in April next year which could adversely affect the tax position of non-resident corporate landlords.
- Firstly, a cap will be imposed on loan interest deductions where the group-wide net interest costs exceed £2 million.
- Secondly, in some circumstances there will be restrictions on the ability to use brought forward losses.
- In addition whilst the Autumn Statement referred to taxable income, one cannot exclude the possibility that capital gains will also be brought into the net and be taxed.
Non resident landlord scheme
In relation to the loan interest cap, the original consultation on this matter had focused on corporation tax although it was recognised that there was an issue relating to corporate landlords who were paying income tax on rental income under the Non-resident landlord scheme. The treatment of non-resident corporate landlords in respect of the interest relief cap had not been settled.
In conclusion
It may be that subjecting non-resident corporate landlords to corporation tax is a neat solution to extending the interest cap to these companies. However, whilst the interest cap will take effect in April 2017, it seems likely that the application of these rules to non-resident corporate landlords would take effect in April 2018.
Watch this space.
The information in this article was correct at the date it was first published.
However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.
If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.
Share
