Offshore property companies need to review UK tax reporting requirements

The issue

Not so long ago offshore companies did not have too much UK tax to worry about. If they received rental income they would generally enter the non-resident landlord scheme to allow them to receive this income gross and then annually pay income tax at basic rates through self-assessment. They did not have to worry about UK tax in respect of UK capital gains and often avoided tax on UK property trading transactions through the use of tax treaties or by arguing that the gain was capital. The environment is now very different and offshore trustees and directors need to be aware of all changes.

Non-Resident Capital Gains Tax (NRCGT)

Non-resident companies must now pay corporation tax on gains made on the disposal of UK residential property that relate to the period from 6 April 2015 onwards and, for non-residential property, gains are taxable in respect of any growth from 6 April 2019.

A company now has to register for corporation tax within 3 months of the disposal, compared with 30 days within which to file a return under the old rules. Registration can be made online and HMRC will issue the company with a corporation tax reference number to allow it to file returns online. If the companies fail to register then they will be open to penalties.

Rental income

Companies under the non-resident landlord scheme should continue to file returns for 2018/2019 and 2019/2020 before corporation tax will kick in from 2020. HMRC will apparently automatically provide references to transfer these companies over to corporation tax. Helpfully any income tax losses brought forward will be ‘grandfathered’ over to the corporation tax regime.

Moving to corporation tax could have other implications than a simple change of tax rate. Things like non-trading loan relationship rules will need to be considered which will have implications on the deductibility of loan interest on loans to connected parties.

Trading transactions

Gone are the days when offshore companies could avoid tax on property development by arguing that the original intention was to invest (or by using tax treaties). There are now complicated and wide-ranging transactions in land rules which attempt to put any trading transactions squarely within the ambit of corporation tax. As soon as companies start seeking planning permission for an onward sale or enter into talks with property developers it is likely that they are triggering UK tax issues.

Final word

UK tax is now getting ever more linked to the assets that form part of transactions rather than the entities which are transacting. Offshore directors and trustees should now be involving their UK advisors much more at a transactional level rather than simply using them for ‘after the event’ compliance services.

 

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