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Sector Focus


Finance Taxing times for property investors


Steven Bone, a director at Gateley Capitus, the tax consultancy arm of Gateley plc, which has an office in Birmingham, looks at changes to the tax system which will affect non-residential landlords.


It is relatively common for UK commercial investment property to be held in offshore companies, because this has historically been an efficient way to hold and administer such property. However, from this month, a


major tax change will affect owners. Rather than income tax being charged under the UK’s longstanding non-resident landlord scheme, instead corporation tax will become payable in line with the legal form as a company and to treat non-UK and UK based property owners in the same way. On the face of it this looks like a


neutral, or perhaps even positive, tax change because the corporation tax rate of 19 per cent is slightly lower than the 20 per cent rate of income tax, and the Conservative party has long aspired to reduce the corporation tax rate further. But like anything in tax, the small


Steven Bone


print is important because the corporation tax rules differ in a


‘Corporation tax will become payable in line with the legal form as a company’


couple of material respects from those for income tax. First, for income tax, borrowing


costs are generally tax deductible as long as they are for business purposes, but for corporation tax a more constrained ‘corporate interest restriction’ (CIR) applies. This limits tax deductions,


broadly, to 30 per cent of taxable profits where interest exceeds £2 million a year. Second, business losses generated after switching into corporation tax will be capped by loss restriction rules. These will affect larger companies


and groups by limiting the amount of brought forward losses that can be relieved in an accounting period to £5 million plus half of profits in excess of £5 million.


So, property owners that have


previously benefitted from business borrowings, losses, or both, to reduce tax bills may find that under the corporation tax calculation they face increased tax liabilities. Therefore, to ensure that


commercial property investments are as tax-efficient as possible, some owners will need a greater focus on routine property tax reliefs, in particular capital allowances, which are the primary way to save tax on UK commercial property investments in a low risk way that is regarded as entirely legitimate by HM Revenue & Customs. If these allowances have not


been fully used in the past, it is even possible to review old property purchases and capital expenditure projects (e.g. extensions or refurbishments), and money spent years ago can generate significant relief now. Also, for the first time, non-UK


company owners will become able to claim land remediation relief (a type of corporation tax saving) for money spent cleaning-up contaminated land and buildings (e.g. removing asbestos or dealing with Japanese knotweed).


74 CHAMBERLINK April 2020


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