Annex 1: Minor changes in the law Change 41: Non-UK companies: sections 520, 535, 536, 541, 579 and 581
This change clarifies the basis on which non-UK companies which are members of a group UK REIT are charged to tax.
A non-UK resident company is chargeable to (corporation) tax on its chargeable gains only if they accrue on the disposal of assets in the United Kingdom that are used in a trade carried on through a permanent establishment in the United Kingdom (section 10B of TCGA). This is consistent with the limitation on the charge to corporation tax set by sections 5 and 19 of CTA 2009. Such assets cannot be “involved in property rental business”.
Section 124(3) of FA 2006 provides that:
“Corporation tax shall be charged in respect of gains accruing to C (residual) at a rate determined without reference to section 13 of ICTA (small companies rate).”
Paragraph 32(3) of Schedule 17 to FA 2006 provides that (in the case of a non-UK company):
“The property rental business of the company in the United Kingdom shall be treated as if it were (subject to the application of this Part) chargeable to corporation tax.”
It is implausible that these rules override section 10B of TCGA. So this Act makes clear that the rules about the taxation of chargeable gains do not apply to non-UK resident companies.
But there is an important distinction between companies not resident in the United Kingdom (to which section 10B of TCGA applies) and non-UK companies (to which some sections in Part 12 of this Act apply). The distinction concerns dual resident companies. These are companies resident in the United Kingdom and resident in another territory (see section 521(1)).
Dual resident companies are not affected by the rule in section 520(3) because their world-wide profits are within the charge to corporation tax. It follows that they do not meet the condition in section 520(2)(b). But they are within the rules about chargeable gains and assets of UK REITs (see sections 535 to 537 and 579 to 581).
The change removes any possibility that a charge to tax on the chargeable gains of a non-UK resident company is imposed by Part 4 of FA 2006.
This change is in taxpayers’ favour in principle and may benefit some in practice. But the numbers affected and the amounts involved are likely to be small.