Changes to the UK taxation of nonresidents owning UK property
• Non-UK companies now liable to corporation tax on UK property income from April 2020.
• Follows recent changes to taxation of both direct and indirect disposals of UK property owned by non-UK entities.
Each non-resident landlord company needs to ensure they have fully registered and are compliant with the new rules which start on 6 April 2020.
All non-resident companies and individuals should consider structuring in advance of property disposals, whether owned directly or through a ‘property rich’ company, to mitigate UK tax charges.
UK rental income received by nonresident companies subject to Corporation Tax from 6 April 2020
Any gains on UK property by non-resident companies are already subject to corporation tax – see below.
The last income tax return will be for the year ending 5 April 2020 and this needs to be filed by 31 January 2021 with any income tax due, paid by the same date.
A CT600 for the first accounting period ending on or after 6 April 2020 needs to be filed with HMRC within 12 months of the company’s year end and any corporation tax due needs to be paid within 9 months and 1 day of the year end (different payment dates apply if the company’s profits are over £1.5m).
Losses. Any income tax losses at 5 April 2020 will carry forward
into the corporation tax regime.
Such losses can be set against future profits from the same UK property business; however, a loss cannot be relieved against gains where the company will be chargeable to corporation tax.
This type of loss must be used in priority to any losses made on or after 6 April 2020 under the corporation tax rules.
IHT. From April 2017 all UK residential property, however owned, also came within the scope of UK inheritance tax (“IHT”). IHT charges will potentially arise on death, the making of certain gifts as well as during the life of certain trusts (‘ten-year anniversary’ and ‘exit’ charges).
Overseas Employment. Changes to both the democratic and economic infrastructure have created excellent global business opportunities or all types of business sectors. Many individuals have been lured away to search for greater rewards but have suffered financial loss due to very poor tax planning that been implemented from the outset.
You may also be required to submit an SA100 and maybe entrapped in a double taxation treaty. Allow us compute and clarify your liabilities. Non-UK Resident Company Operations With careful planning you can trade within the UK and may be eligible to a tax free exemption subject to fulfilling certain legal requirements. However if the entity is registered as a Cypriot resident company, current legislation permit the shareholder to purchase and dispose shares and suffer a zero rate of tax should any transactions crystallise a capital gain, subject to certain criteria.
For homeowners, their elected Principal Private Residence (PPR) Relief is a major benefit in the case of lifetime disposals, as no Capital Gains Tax (CGT) is payable.
The PPR includes gardens and grounds up to 0.5 of a hectare (about 1.23 acres). (Larger areas than this can be justified in certain cases if required for the ‘reasonable enjoyment’ of the residence.)
However, Capital Gains Tax does apply on the gain in value of the non-permitted area, from the exchange date at purchase to the exchange date at sale. This includes everything outside the permitted area such as a let cottage, holiday let, commercial workshop and agricultural land on a Farm Business Tenancy or grazing licence. Any commerciality is excluded from the permitted area.
The current rate of Capital Gains Tax is 28% based on the chargeable gain.
At the moment, if you sell in the tax year 2018/19, any tax is payable by 31 January 2020 as part of the annual self-assessment cycle. This represents a 10 to 22 month payment delay.
HM Revenue & Customs (HMRC) has had a consultation titled: CGT – Payment window for residential property gains.
The proposal is that from April 2020, Capital Gains Tax will be payable within 30 days of the sale, gift or disposal being completed.
(The date of completion is normally the day when the property conveyance takes place, not the date of exchange.)
The draft legislation is in the Finance Bill and requires approval by the House of Lords before it is enacted.
If the gain is fully covered by Principal Private Residence Relief, then no tax is payable.
Vendors and donors will need to make a special payment on account return to HMRC confirming:
• The disposal
• The amount payable
Retention of sufficient records and collation to calculate the gain, for example purchase price, subsequent acquisitions, any improvements and professional fees, will need to be available so a valuer can calculate the gain and any apportionment between permitted area and non permitted area.
There are the practical considerations of making accurate calculations within 30 days and ideally a valuer needs to be instructed at least at the start of the sale process before the property is offered for sale so there is enough time to undertake the valuation and apportionment’s.
Vendors and donors will also need to have the necessary funds to pay the tax within 30 days.
It is important to be prepared, because late filing penalties and interest will apply in cases of failure to pay within 30 days.
This shortening of the timescale for payment of Capital Gains Tax will remove the current benefits of delayed payment and put pressure on vendors to be very focused on organising their records and an assessment before sale.
If you would like to discuss these changes to Capital Gains Tax, and how they may affect you, please get in touch.
If you are in the luxury position of residing outside the United Kingdom and receive income from within the UK, you may still be subject to UK tax. Careful tax planning may increase your revenue, therefore please speak to us for any advice and any issues that concern you.
Overseas Expats. If you are in the luxury position of residing outside the United Kingdom and receive income from within the UK, you may still be subject to UK tax. Careful tax planning may increase your revenue, therefore please speak to us for any advice and any issues that concern you.
Moving Overseas Permanently. If you decide to move overseas for pastures new, speak to us first before disposing of any business / non business assets as you may still be liable to capital gains or income tax. Additionally you may be entitled to a tax refund, allow us the opportunity to guide you along the right path more.
Trading Overseas. A UK / Non UK entity may branch out into overseas trading / manufacturing or by forming a permanent overseas entity, even using an agent, franchising and may result in having to comply with local legislation and be party to double taxation, legal constraints, currency exchange, employment law and more. We can plan along side you to ensure you maximise your returns and work within the parameters of local law.
Forming a Limited Company in Cyprus. We would also like to inform you that we have the facilities in place to form limited companies in Cyprus and will also guide you throughout your period of trade more.
Cyprus-Auditing your Company. Our associates core audit and assurance services include statutory audits, internal audits and due diligence investigations into potential business acquisitions. The External Auditors prime responsibility is to form an independent opinion on the financial statements which comply with local legislation and which have been prepared in accordance with International Financial Reporting Standards. All audits are conducted in accordance with International Standards on Auditing and tailored to the size of your company. We view our role in the financial reporting process as an opportunity to provide constructive recommendations on financial processes, key controls and performance indicators.
Cyprus-Taxation. On becoming a permanent resident of Cyprus, you should notify the local income tax authorities to enrol as a Cypriot taxpayer. Any individual that resides in Cyprus for more than 183 days during the financial year is required to pay tax on any income generated within Cyprus or from overseas. Currently there are two tax schemes in operation, one for the employed and the other for the retired. Retired persons benefit from favourable tax rates, with a ceiling of 5% on any income of €3,419 or above. In order to comply for this, retired people are unable to undertake any paid employment. Tax band rates for working taxpayers are more.
Cyprus and Double Taxation Agreements with many Countries including the UK. No income tax is payable in Cyprus on other sources of income, including bank interest and dividends from shares, although they do incur a Cyprus Defence Levy tax of between 10% and 15% depending on the type of income more.
Dividend tax in Cyprus, depends on whether the income is received by a corporate shareholder or an individual. Since Jan. 1, 2003, dividends have not been taxed in Cyprus, unless they are received by a Cypriot tax resident individual. Payments of dividends to non-residents, whether corporate shareholder or individual, are not taxed. Note that, for tax purposes, a company is deemed a resident company if it is managed and controlled in Cyprus. A person is considered a resident if they have lived in Cyprus for more than 183 days in the same tax year. Cyprus holding companies have a major advantage in regards to the fact that there aren’t any withholding taxes on dividends received from other Cyprus resident companies, or by a permanent Cyprus establishment belonging to a non-resident company.
The only exceptions where these cases don’t apply are as follows:
In most cases, dividends sent from an EU country, and received by a domestic shareholder, are free from withholding tax. However, if dividends are received from a non-EU country, the rate of the withholding tax will depend on whether or not there is a double taxation treaty between Cyprus and the payee’s country of residence. If there isn’t a double tax treaty, the domestic rate from the payee’s country applies.
- More than half of the paying companies income are from investments.
- The foreign tax on the subsidiary is much lower than Cyprus’s tax.
Deemed dividend distribution, applies only to companies that have Cyprus tax resident shareholders, who are either physical or legal persons. These provisions don’t apply if a shareholder of a Cyprus company is a Cyprus tax resident, who is also acting as a nominee shareholder and holding shares for foreign persons. Deemed dividend distribution affects international investors only when a Cyprus tax resident company holds another Cyprus tax resident company. Deemed dividend distributions that aren’t exempt are subject to a 15% special contribution tax.
Capital Gains Tax of 20% is payable on the sale of immovable property in Cyprus. No capital gains tax is payable on gains from investments subject to certain criteria.
Inheritance tax is currently abolished in Cyprus.
If you would like more information or would like to ask us a question then call us on 0161 283 9639. JT Accountants take every care in making their recommendations and offering advice, any contract is bound between the selected accountant and the client.
JT Accountants cannot be held liable for any failure on the part of either of the parties concerned. JT Accountants is a trading name of JT Accountants Limited Company No. 06554865. Registered in England and Wales. Registered Office Flat 1, Sir Matt Busby Way, Old Trafford, Manchester, M16 0QG.