HMRC has laid regulations introducing an alternative to the corporate interest restriction (CIR), which agents acting on behalf of non-resident landlords may apply in relation to financing costs included in rent withheld on account of tax for periods commencing on or after 1 April 2020. This alternative rule, based on a fixed allowance of 30% of net UK rental income, is subject to the agent making an irrevocable election.
From 6 April, non-UK resident company landlords that carry on a UK property business, or have other UK property income, will be charged to corporation tax, rather than income tax as at present. Consequently, the CIR will apply to such companies, including where an agent is required to withhold an amount on account of tax under the non-resident landlord scheme (NRLS).
Applying the corporate interest restriction may require detailed knowledge of non-UK resident company landlords and their wider group funding arrangements. If agents were unable to apply the restriction, landlords might need to claim financing costs directly through the company tax return, increasing the administrative burden.
The Taxation of Income from Land (Non-residents) (Amendment) Regulations, SI 2020/151, introduce a simplified rule limiting the deduction for any financing costs to a fixed allowance of 30% of the UK rental income, net of deductible expenses other than financing costs, plus any unused allowance carried forward from a previous quarter period. Any unused financing costs above the allowance may also be carried forward. Agents must notify HMRC of their election with the NRLS annual return.
Provided the agent is ‘reasonably satisfied’ these costs would be deductible in calculating the taxable profits of the non-UK resident company’s property business, they can be deducted from rental income and withheld by the agent on account of tax under the NRLS. This alternative rule may not be applied to financing costs which are attributable to any time before 6 April 2020.
In addition to a tax information and impact note, HMRC has published a detailed guidance note containing examples of how to calculate the alternative ‘financing costs allowance’.
HMRC has also updated its guidance for non-resident companies on how to register for corporation tax, specifying that the current exemption from notifying chargeability to corporation tax where liability is fully offset by tax deducted under the NRLS will cease to apply for disposals made on or after 6 April 2020.
HMRC has laid regulations introducing an alternative to the corporate interest restriction (CIR), which agents acting on behalf of non-resident landlords may apply in relation to financing costs included in rent withheld on account of tax for periods commencing on or after 1 April 2020. This alternative rule, based on a fixed allowance of 30% of net UK rental income, is subject to the agent making an irrevocable election.
From 6 April, non-UK resident company landlords that carry on a UK property business, or have other UK property income, will be charged to corporation tax, rather than income tax as at present. Consequently, the CIR will apply to such companies, including where an agent is required to withhold an amount on account of tax under the non-resident landlord scheme (NRLS).
Applying the corporate interest restriction may require detailed knowledge of non-UK resident company landlords and their wider group funding arrangements. If agents were unable to apply the restriction, landlords might need to claim financing costs directly through the company tax return, increasing the administrative burden.
The Taxation of Income from Land (Non-residents) (Amendment) Regulations, SI 2020/151, introduce a simplified rule limiting the deduction for any financing costs to a fixed allowance of 30% of the UK rental income, net of deductible expenses other than financing costs, plus any unused allowance carried forward from a previous quarter period. Any unused financing costs above the allowance may also be carried forward. Agents must notify HMRC of their election with the NRLS annual return.
Provided the agent is ‘reasonably satisfied’ these costs would be deductible in calculating the taxable profits of the non-UK resident company’s property business, they can be deducted from rental income and withheld by the agent on account of tax under the NRLS. This alternative rule may not be applied to financing costs which are attributable to any time before 6 April 2020.
In addition to a tax information and impact note, HMRC has published a detailed guidance note containing examples of how to calculate the alternative ‘financing costs allowance’.
HMRC has also updated its guidance for non-resident companies on how to register for corporation tax, specifying that the current exemption from notifying chargeability to corporation tax where liability is fully offset by tax deducted under the NRLS will cease to apply for disposals made on or after 6 April 2020.
