Non-resident landlord companies and corporation tax – What you need to know

Non-resident landlord companies are being brought within the scope of UK corporation tax from 6 April 2020. This means that they will no longer be liable to income tax on their profits but will be liable to UK corporation tax instead.

HMRC have started to issue letters to non-resident landlord companies stating the following:

  • The company’s new corporation tax reference – helpfully this is different to the one the company currently uses as a non-resident landlord subject to income tax.

And are requesting to be updated with the following information:

  • If you no longer let out UK property or land
  • If you fill in a tax return which is not a non-resident company income tax return (SA700)
  • If you already have a company UTR for corporation tax
  • If you do not use 5 April as your period end date

Troublingly, it would seem that HMRC think that most non-resident landlord companies have an accounting year end of 5 April. In our experience this is far from the truth. This is therefore something we are discussing with HMRC.

The letter asks for the company to write back with the information above. We suggest that those affected do not respond until we have clarity on a number of points which we hope to have very shortly.

In addition, HMRC have issued guidance on what the transition means for tax purposes looking at both the changes to what needs to be filed, when it needs to be filed, how and when the taxes need to be paid, as well as the effect the changes have on brought forward losses and capital allowances. Having reviewed the guidance, there are still a lot of open questions which we are addressing through our relationship with CIOT and HMRC – such as the year end point above – and we will be issuing a comprehensive note in due course.

However, some key points from this guidance are:

  • It is clear that HMRC will expect non-resident landlord companies to file accounts with their corporation tax returns in the same way that a UK company does.
  • Losses of the rental business carried on by the company as a non-resident landlord subject to income tax can be carried forward and be used by the company for corporation tax purposes subject to a restriction that prevents post April 2017 losses from being used against anything other than rental profits of a future period of that company.
  • If your company has claimed capital allowances under the income tax regime, your capital allowances written down value pools as at 5 April 2020 will transfer to corporation tax without giving rise to a balancing allowance or balancing charge. This will be done on an apportionment basis which we will provide guidance on.

What next?

We will be issuing more detailed guidance on the transition shortly.

If you have any questions or concerns regarding this in the meantime, please get in touch with our tax team who will be able to assist you further.