Tax changes affecting non-resident landlords

Although non-resident landlords (NRL’s) have seen significant changes in UK taxation since 2013, a weaker sterling in the last year has seen a strong interest from overseas buyers in the UK real estate. NRL’s have a range of tax changes they need to understand, some of which are described below.

There are about 22,000 corporate NRLs holding UK residential and commercial property. From 6 April 2020, Corporate NRL’s will face the following changes:

• Subject to corporation tax (previously taxed under income tax rules).
• Those whose accounting periods straddle this date will be subject to an income tax return (SA700) for the period up to 5 April 2020 and a corporation tax return (CT600) from 6 April 2020 to the end of their accounting period.
• Will get caught by the Corporate Interest Restriction rules. This limits a deduction to £2m of interest cost, although tax agents will be able to make an irrevocable election to use a fixed allowance of 30% of UK rental income net of deductible expenses for financing costs.  There will be an ability to carry forward any unused financing costs or unused allowance.

Gains on disposals of UK property:

• All NRLs have been subject to CGT on disposals of UK residential property since April 2015. The non-resident CGT return had to be submitted (and tax paid) within 30 days of the completion of the sale.
• From 6 April 2019, all NRLs will be subject to CGT on disposals of UK residential and commercial property and disposals of shares in companies which derive 75% or more of their gross asset value from UK land.
• Between 6 April 2019 and 5 April 2020, gains on disposals of all UK property by corporate NRLs will be subject to corporation tax based on a 1-day accounting period, with the tax due within 3 months and 14 days from the completion of the sale. Indexation allowance will be available up to December 2017.

During the Budget 2020, the Chancellor announced a 2% SDLT surcharge on non-UK residents purchasing residential property in England and Northern Ireland from 1 April 2021.

It was common for a non-UK domiciled individual (who would not be subject to UK inheritance tax) to hold UK property through offshore company(ies) and trust(s).  Since April 2017 the scope of IHT has been extended to include values of UK residential property(ies) owned through offshore company(ies) by catching the value reflected in the company’s shares.

It is highly recommended that NRL’s (individuals, trustees and corporates) seek tax advice on appropriate planning strategies. Also, non-compliance can result in penalties.

To find out how we can help you, please contact a member of our team.