Corporate Tax - UK Real Estate (2024)

Corporate Tax - UK Real Estate

As a tax neutral jurisdictions, Jersey and Guernsey are well placed as tax neutral investment platforms for inward investment directly or indirectly to the UK property sector. Whilst over time many tax advantages have been eroded by ever changing tax legislation issued by the UK government, increasingly for non-tax considerations, Jersey and Guernsey maintain their attractiveness to global investors as the preferred property vehicle due to their flexible capital maintenance regimes and abundance of real estate professionals and expertise with the Islands.

Corporation Tax considerations

We have at a high level summarised some of the tax considerations to be considered by non-UK investment vehicles of UK real estate:

Corporation Tax compliance

Whilst non-UK resident companies are subject to UK Corporation Tax on their UK property business profits only at the current Corporation Tax rate of 25% (from 1 April 2023) as they are unable to benefit from the small profits or marginal rate.

Non-UK investment vehicles in receipt of UK property income have ongoing compliance obligations to submit a Corporation Tax return (alongside iXBRL tagged financial statements) to HM Revenue and Customs (“HMRC”) within 12 months of the accounting period end date.

Payment of Tax

HMRC charge late payment interest on tax which is not paid on time. To minimise the impact of these interest charges, it is essential to remain aware of the relevant payment date for UK Corporation Tax.

The relevant payment date for a Companies UK Corporation Tax liability will be dependent on the Companies level of taxable profits. Broadly, for standalone Companies with no associated companies, where taxable profits for an accounting period are less than £1.5million, the Corporation Tax liability is due for payment within 9 months and one day of the accounting period end. Where profits exceed £1.5million, the Company will be required to make quarterly instalment payments to HMRC under either the large or very large payments regime. A Company is considered to be large (taxable profits between £1.5million and £20million) or very large (taxable profits exceeding £20million).

Additional considerations are required where the Company is part of a group or has associated Companies through ownership (for accounting periods beginning on or after 1 April 2023)., the above thresholds are split between all associated companies. It is therefore vital to ensure both the tax compliance and payment obligations are reviewed on an ongoing basis to minimise the impact of late payment interest charged by HMRC.

Corporate Interest Restriction

Other considerations apply to both non-UK and UK companies and groups investing into UK real estate, including the UK Corporate Interest Restriction legislation adopted with effect from 1 April 2017, as part of the initial series of OECD BEPS measures designed to prevent the shifting of profits from the UK to low tax territories using connected party financing arrangements, which may restrict groups with net interest expenses of greater than £2million.

Capital gains

From 1 April 2019, the direct or indirect disposal of both UK commercial or UK residential by a non UK resident company may be subject to Corporation Tax. Any disposal must be reported to HMRC and consideration of whether a taxable gain arises on disposal should be considered.

Alternatively, it may therefore be beneficial for UK property rich offshore collective investment vehicles to consider whether the transparency or exemption elections available to qualifying collective investment (“CIV”) schemes.

Detailed advice and modelling should be undertaken as dependent on both the corporate structure utilised and the tax status of investors, there is no one size fits all approach in determining the most favourable outcome for investors in the acquisition, holding and exit of UK real estate assets.