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Last updated: 22 Sep 2021
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Further tax changes for companies that own UK property

In recent years, we have seen many changes to the tax compliance and reporting requirements for companies owning UK property. Further changes are on the horizon following the announcement in the 2021 Spring Budget of the proposed increase in corporation tax rates in April 2023. 
Corporation tax

If you have a business with UK property, the impact of these changes will further increase your tax and compliance burden, so it’s crucial to ensure you are well informed before making any key investment decisions.

Corporation tax

In the 2021 Spring Budget, the Chancellor, Rishi Sunak, announced that the main rate of corporation tax will increase to 25% from 1 April 2023. This increase will affect companies with profits above £250,000 and, less widely advertised, all close investment companies (broadly a company controlled by five or fewer participators), regardless of their profit level. This is due to small profits relief not being available to close investment companies.  

In our experience, most investors have historically purchased UK property either through a UK or offshore company, and these will often be classed as close companies due to the number of shareholders. This is attractive as a close company can offer privacy to the investors, greater control of the underlying assets and company operations, while also offering a degree of limited liability on personal assets, should something happen to the property.

About the authors

Jessica Beere

+44 (0)20 7556 1282
beerej@buzzacott.co.uk
LinkedIn

James Currie

+44(0)20 7556 1319
Curriej@buzzacott.co.uk

If you have a business with UK property, the impact of these changes will further increase your tax and compliance burden, so it’s crucial to ensure you are well informed before making any key investment decisions.

Corporation tax

In the 2021 Spring Budget, the Chancellor, Rishi Sunak, announced that the main rate of corporation tax will increase to 25% from 1 April 2023. This increase will affect companies with profits above £250,000 and, less widely advertised, all close investment companies (broadly a company controlled by five or fewer participators), regardless of their profit level. This is due to small profits relief not being available to close investment companies.  

In our experience, most investors have historically purchased UK property either through a UK or offshore company, and these will often be classed as close companies due to the number of shareholders. This is attractive as a close company can offer privacy to the investors, greater control of the underlying assets and company operations, while also offering a degree of limited liability on personal assets, should something happen to the property.

Interest deductions

Interest deductions

From 6 April 2016, a new restriction was introduced gradually on the tax relief available to individual property landlords on mortgage interest. From 6 April 2020, interest is restricted to a tax credit of 20% of the interest paid. Therefore, in addition to some of the commercial benefits of corporate ownership, mentioned above, property investors often favour a corporate structure as the mortgage interest is allowable in full to most property companies, subject to the corporate interest restriction.  

The corporate interest restriction rule was first introduced in 2017 and restricts deductible interest for larger companies and groups where borrowing against properties is high and the company is heavily geared such that the annual interest charge exceeds £2million.

Stamp Duty Land Tax (SDLT)

Stamp Duty Land Tax (SDLT)

The rate of SDLT for a UK incorporated company purchasing UK residential property for more than £500,000 is 15% for the first purchase and 18% for additional properties. 

In addition to the normal rate, from 1 April 2021, HMRC has further penalised offshore companies investing in UK residential property by implementing an additional 2% SDLT surcharge, in addition to the normal rates. This results in a rate of 20% on the purchase of a second or further properties by an offshore company.  

Where a company is acquiring multiple dwellings or there is mixed commercial and residential use of a property, the relevant SDLT reliefs should be considered.

What does this mean?

What does this mean?

The increase in the rate of corporation tax by 6% is a significant increase for closely owned property companies. However, this is mitigated by the tax relief for interest payments when compared to personal ownership, but it still means that a company with the same rental profit will be worse off from April 2023. The SDLT surcharge for non-UK companies and the ever-increasing Annual Tax on Enveloped Dwelling (ATED) charge should make investors question if a corporate structure remains the appropriate structure and whether they should undertake a review and look to de-envelope the property.

Whether you have invested or are considering investing in new UK residential or commercial property it is always best practice to review your financial structure/position on a regular basis. 

HMRC and the Office of Tax Simplification have previously called for a review of Capital Gains Tax and there is an ongoing review of the Inheritance Tax regime so we could see further changes announced. The 2021 Autumn Budget has been confirmed by the Treasury to take place on 27 October 2021 so watch this space for further announcements then.

Speak to an expert

Speak to an expert

If you’re looking to review your financial structure/position or if your personal circumstances have changed or you are finding all of the recent changes difficult to navigate, please fill out the form below and one of our experts will be in touch to assist you in finding the most optimal solutions for your property business.

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