Corporation tax for non-resident landlords

Apr 20, 2020

From 6 April 2020, corporate non-resident landlords (“NRL”) are subject to UK corporation tax on profits from their UK property rental business instead of 20 per cent basic rate tax – see the guidance on this change. 

However, unless the NRL has registered for gross payment, agents will still be required to withhold and account for UK income tax on rentals paid to such NRLs (with the NRL then being required to register for corporation tax and either pay top-up tax or claim a refund, to the extent its corporation tax liability is higher or lower than the tax withheld).  

In addition, where the agent settles expenses on behalf of the corporate NRL, it will need to be reasonably satisfied that the expenses are deductible under corporation tax principles in order for them to be deducted in calculating the withholding tax liability.  

Under new SI 2020/151 (which was published in February 2020, along with an accompanying HMRC guidance note), if the agent settles “financing costs” on behalf of the corporate NRL, the agent will be allowed to elect to apply a simplified corporate interest restriction (“CIR”) regime to determine to what extent such financing costs are disallowed by the CIR legislation.  

Broadly, the simplified regime caps relief for financing costs at 30 per cent of the net rental income after relief for deductible expenses other than financing costs, with any unused allowance or excess financing costs being carried forward to future quarters 

The published guidance covers a number of administrative matters including corporate tax registration, payment and return submission, and technical points on relief for finance expenses and transitional rules relating to the transfer of existing capital allowances and losses.