Which payments, made by a UK-resident company or a non-UK resident company carrying on a trade in the UK are subject to withholding tax in the UK?
In broad terms, the main types of payment potentially subject to UK withholding tax are interest payments, royalty payments and rent paid to non-UK resident landlords by tenants or UK letting agents. However, there are various exclusions from the general rule that should be explored to fully understand your position.
In addition, most payments to employees are also subject to deduction at source; in most cases employers are required to deduct income tax and national insurance contributions from salary paid to employees in the UK.
What are the tax considerations when a non-UK resident acquires residential property in the UK?
Stamp duty land tax is payable on the purchase of UK residential property. Depending on the amount paid and the underlying circumstances, the rates can range from 0% to 15%. Please find further information here.
If you will rent out the property you will be subject to UK tax on the rental income. Tax may be deducted by your tenant or land agent unless you join the non-resident landlord scheme, which allows rent to be paid gross.
Gifts of UK residential property by individuals may suffer a charge to UK inheritance tax. Disposals of UK residential property may be subject to UK tax: for example, individuals may be liable for capital gains tax at 28% on any gain.
Companies holding residential property with a value of over £500k may also be liable to pay the annual tax on enveloped dwellings (ATED). There are various reliefs available to mitigate the ATED charge but these need to be claimed each year in the ATED return.
Purchasers of UK residential property need to be aware of the potential tax consequences that may arise in relation to their purchase. The precise situation will dictate the level of taxes that will, or may, become payable and advice should be sought prior to purchasing any UK residential property to ensure that the full position is fully understood.
Do UK holding companies pay UK corporation tax on dividends received from overseas subsidiaries?
Although, technically speaking, UK companies are subject to corporation tax on dividends received, most dividends received by UK corporation tax payers are exempt, regardless of whether the dividend has a UK or overseas source. The exemptions usually result in no tax actually being paid. Examples of the exemptions include dividends paid to a company that controls the company making the distribution, dividends paid in respect of non-redeemable ordinary shares and dividends received by small companies.
Please note that each condition features a number of requirements that must be satisfied. We would strongly suggest that appropriate advice is sought to establish whether dividends will be received tax free when considering a future group structure.
How are employees visiting the UK for a short period taxed?
In general payroll must be operated and income tax and national insurance contributions paid and withheld from the visiting employee’s earnings. However, in some cases, special arrangements for short-term business visitors can be made with HMRC (by application). The availability of “visitor” treatment or a short-term business visitor arrangement will depend on the circumstances in question; for example, the relevant visitor's home country and whether the visitor can rely on a double tax treaty with the UK.
Do UK holding companies pay UK corporation tax on the sale of shares in an overseas company?
In broad terms, UK companies are subject to UK corporate tax on gains arising on the sale of shares in overseas companies. However, provided that certain requirements are satisfied, the substantial shareholding exemption should be available to exempt such a gain from UK tax. To fall within the exemption the selling company must have held at least 10% of the ordinary shares in the subsidiary for a continuous twelve month period beginning not more than six years before the disposal. In addition, the subsidiary must be a trading company or the holding company of a trading group. We would strongly advise that specific advice is obtained to confirm the position in each case.
Can overseas companies with permanent establishments in the UK benefit from tax-incentivising investment reliefs?
Yes. Overseas companies with permanent establishments can, in certain circumstances, benefit from the seed enterprise investment scheme (SEIS) and enterprise investment scheme (EIS). Further, in some cases, companies with UK operations are able to benefit from the UK’s R&D relief regime, which can increase tax deductions in respect of qualifying expenditure on research and development.
The SEIS and EIS schemes allow investors to benefit from various income tax and capital gains tax reliefs and therefore prove very useful for smaller businesses. Due to the advantages provided by both reliefs, the qualifying conditions are complex and numerous and appropriate expert advice should be sought if you have any plans to raise cash this way.
What is the current corporation tax rate in the UK?
The current corporation tax rate in the UK is 19%. However, it is due to reduce to 17% from 1 April 2020.
Which taxes may be payable if renting a commercial property in the UK?
The main taxes that are likely to be payable when renting commercial property in the UK are stamp duty land tax (SDLT) and value added tax (VAT). Although many leases will not attract any SDLT at all, if SDLT is payable the most usual rate is 1% of the "net present value" of the rent over the lifetime of the lease calculated in accordance with a specified formula. Where a very high annual rent is payable a 2% rate may apply.
VAT may be chargeable at a rate of 20%. In many cases, where the tenant is using the property wholly and exclusively for its VATable business (i.e. it is VAT registered and only makes supplies that are subject to VAT), the VAT payable on the rent should be capable of being recovered from HM Revenue & Customs through the quarterly VAT return. As such, the payment of VAT is often not a real cost to a business.
If I own commercial property in the UK, can I receive the rent without deductions?
Rent payable in respect of UK property to landlords resident overseas should be subject to deduction of tax by the tenant or the land agent. It is, however, possible to register with HM Revenue & Customs under the non-resident landlords' scheme, which allows the tenant or the land agent to pay rent to the landlord without deduction.