Budget: No major impact on non-UK resident companies investing in the UK property market
The Budget announcement by the Chancellor offers a mixed bag for stakeholders of the property market in the UK.
However, the announcement has little impact on the non-UK resident companies, especially those investing in the property market, particularly with respect to taxes applicable to them.
The basic income tax rate for non-resident companies remains at 20% and the gains realised by non-UK residents continue to remain outside the scope of the charge to UK tax on capital gains, except in relation to disposals of residential property in certain circumstances, noted PWC in its report on the budget and this should put to rest any kind of anxiety among the non-UK resident companies.
However, the non-UK resident companies can expect an increase in the rate of real estate transfer tax (SDLT) applicable to properties in the UK excluding Scotland where properties are covered under the Scottish Land & Buildings Transaction Tax (LBTT). In the wake of the proposed changes in the SDLT, changes in LBTT are also predicted, something that non-UK resident companies, which are investing in the Scottish property market should take note of in the coming days.
What should be seen as a major relief is that the basic income tax rate for non-UK resident companies has not been altered. There were apprehensions among the foreign investors that the income tax rate applicable to them could be enhanced, but they have been spared. This should encourage more foreign investors to explore the UK property market this year for better returns.
The non-UK resident companies have also been spared from the UK corporation tax on UK property income. But in specific cases wherever applicable, the corporation tax is down to 19% from the previous 20% and it will be applicable from the next fiscal. By 2020, the corporation tax rate is expected to further reduce to 17% and this should be of significant interest to non-UK resident companies.
The Budget has introduced scope for new anti-avoidance provisions in relation to profits from trading in and developing UK land. According to PWC analysis, the new anti-avoidance provisions are applicable to situations where non-UK tax resident companies hold property on trading account, non-UK tax resident companies provide property development services in relation to UK property development, and where there is "disguised" trading in UK property by means of an indirect disposal (e.g. where a non UK tax resident company sells shares in a company which owns UK property).
To summarise, the non-UK resident companies do not have to worry much from the Budget provisions and can be assured that their interests will remain protected.