Changes to tax treatment for overseas developers of UK property

Susie Walker

Susie Walker

Partner and Head of Tax and Brexit Team

The Government has announced significant changes, designed to ensure that overseas developers of UK property are subject to UK corporation tax on profits derived from such developments, regardless of whether or not they are resident in the UK for corporation tax purposes.

At present non UK resident companies with trading profits deriving from UK property development are not subject to UK tax providing that:

  • They are resident in a country that has a double tax treaty with the UK which prevents the residual income tax charge; and
  • They do not trade through a UK permanent establishment.

The new legislation will ensure that the profits of a trade carried on by a company will be subject to UK corporation tax where the company is dealing in UK land or developing UK land. This charge will apply regardless of the residence of the seller or the presence of a UK permanent establishment.

Although the legislation will not come into force until later in the year (expected to be June) a Targeted Anti-Avoidance Rule (TAAR) has also been introduced, effective from 16 March 2016, to prevent any re-structuring that might occur prior to the introduction of the full legislation.

In addition to the TAAR, other measures have been introduced to render any other planning conducted post 16 March redundant. The new rules will apply to partnerships, trusts, companies and individuals.

UK property held as an investment rather than as a trading asset will not be subject to the new rules, providing that no development work is carried out on the property.