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The Budget 2018: Extension of corporation tax to non-resident corporate landlords from 6 April 2020

The Budget 2018: Extension of corporation tax to non-resident corporate landlords from 6 April 2020
  • United Kingdom
  • Tax planning and consultancy - Budget


As anticipated, the Budget papers have confirmed that corporation tax will be extended to UK property income of non-resident corporate landlords and to those companies owning UK property via partnerships and other income transparent structures such as offshore property unit trusts.

Helpfully, there will be provisions ensuring that capital allowances go across on a tax neutral basis allowing existing income tax losses to be carried forward – it appears without restriction – against future UK property business profits chargeable to corporation tax.

Apart from computational and compliance changes, the rules could, however, have very wide-reaching implications for many structures and investors. In particular, the extension of the corporation tax regime to non-resident corporate landlords (as opposed to the income tax rules which apply at present) will also bring into force some of the more restrictive provisions that currently apply to UK corporation taxpayers and which were introduced recently as a result of the implementation of the OECD Base Erosion and Profit Shifting (BEPS) measures in the UK. These include potential for costs to be disallowed in computing taxable profit under the hybrid mismatch rules, the corporate interest restriction rules (particularly, but not limited to positions where there are connected parties involved) and the restriction on the use of carried forward losses.

Draft legislation published on 29 October 2018 updates earlier draft legislation, in particular around provisions giving more clarity on how loan relationships and derivative contract rules will apply.

Guidance on how the transition will be effected will be published in 2019 before the change takes effect.

Notably, these rules come into effect one year later than the introduction of the extension of the rules on capital gains tax for non-UK residents holding direct and indirect interests in UK real estate, which come into effect a year earlier, from 6 April 2019.

We anticipate that many larger offshore structures, in particular those with connected party debt may need to consider whether their current structure will remain optimal under the new rules. However, targeted anti-avoidance provisions have also been introduced from Budget day, which should be borne in mind in any restructuring proposals.

Please view our dedicated Budget 2018 hub here. It will give you access to our watch list, our contributors and relevant articles and tweets.

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