Non-Resident Companies and UK Property: Why It's Corporation Tax Now, Not Income Tax

We still meet overseas structures — often set up years ago with UK property held through a Jersey, BVI or Isle of Man company — run on the assumption that the tax due on the rent is a flat 20% under the Non-Resident Landlords Scheme, the same as it always was. Since 6 April 2020, that assumption is simply wrong. Every non-UK resident company with UK property income is charged to Corporation Tax, not income tax, and the shift changes far more than the rate on the calculation — it changes how the finance costs are relieved and what has to be filed.

What actually changed, and when

Before 6 April 2020, a non-resident company earning UK rental income was taxed under income tax rules, in essentially the same way as a non-resident individual landlord operating through the Non-Resident Landlords Scheme — basic rate tax on net rental profit, computed on income tax principles. Finance Act 2019 moved that income within the corporation tax regime for accounting periods beginning on or after 6 April 2020, mirroring a change made a year earlier that brought gains on UK land and property realised by non-resident companies within corporation tax from April 2019. HMRC ran a bulk exercise around the changeover to move existing NRLS-registered companies onto corporation tax records automatically; any non-resident company starting a UK property business since then registers for corporation tax directly rather than through the old NRLS process.

The rate: not simply a straight swap

The most obvious change is the headline rate, and it does not move in one direction. Corporation tax runs a 19% small profits rate on profits up to £50,000, a 25% main rate above £250,000, and marginal relief tapering between the two — with those thresholds divided between any associated companies under common control, which matters for an overseas family that holds several UK properties through separate companies. Depending on the profit level and the number of associated companies in the group, the effective rate can land above or below the old flat 20% income tax rate. It is not automatically cheaper, and it is not automatically more expensive — it depends entirely on the structure, which is exactly why the change needs modelling property by property rather than assumed.

NRLS withholding didn't go away

A point that catches people out in both directions: the shift to corporation tax did not switch off the NRLS withholding mechanism. A UK letting agent, or a tenant paying more than £100 a week directly, still has to deduct basic rate tax from the rent at source unless the landlord company holds NRLS approval to receive it gross. What changed is what that withheld tax is credited against — it now settles the company's corporation tax liability via its annual CT600 return, rather than an income tax liability assessed more simply. For a company running losses, claiming capital allowances, or sitting in the small profits band, that can mean tax withheld all year that only comes back once the return is filed and processed months later, a cashflow drag that did not exist under the old regime in the same form.

The bigger change: how loan interest is relieved

This is where the 2020 reform bites hardest for a geared structure. Under the old income tax rules, a non-resident company's borrowing costs were relieved broadly as they would be for an individual landlord. Bringing the company within corporation tax moves its finance costs into the loan relationship rules instead, which generally give full relief for genuine commercial interest as it accrues on a debit basis — a materially different, and often more generous, framework than the income tax approach it replaced. That generosity is capped by the corporate interest restriction, which limits net group interest deductions once they exceed £2 million a year, a rule that simply did not exist for a non-resident company before 2020 because interest restriction of that kind only applies within the corporation tax regime. We cover how the cap actually works in our guide to the corporate interest restriction for property companies; for a highly leveraged overseas-owned portfolio, this single change is often worth more, in either direction, than the headline rate move.

Filing obligations step up

The administrative burden moved up a level alongside the tax treatment. A non-resident company now within corporation tax needs a CT600 return, full corporation tax computations, and iXBRL-tagged accounts filed through HMRC's online service unless a specific dormant or exempt-company easement applies — a materially heavier compliance load than the income tax return the same company would have filed before April 2020. Groups holding several UK properties through separate non-resident companies, common in older offshore structures, now carry that filing obligation separately for each company in the group, on top of the associated companies analysis that determines each one's tax rate band.

Where this interacts with everything else

The 2020 change did not arrive in isolation, and the pieces need reading together rather than one at a time. A dwelling held by the same non-resident company can still fall within the Annual Tax on Enveloped Dwellings regime regardless of the income tax to corporation tax shift, since ATED runs on entirely separate rules keyed to the company wrapper rather than the tax the rental profit is charged under. A purchase by the same company remains subject to the 2% non-resident SDLT surcharge on the way in, on top of the ordinary company purchaser surcharges. None of these regimes were designed as one coherent system — they were built at different times for different purposes — which is exactly why an offshore structure that made sense under the pre-2020 rules is worth revisiting rather than assumed to still be optimal now that the underlying tax base has moved from income tax to corporation tax entirely.

Common questions

When did non-resident companies start paying corporation tax instead of income tax on UK property income?

From 6 April 2020. Before that date, a non-UK resident company with a UK property business paid income tax at the basic rate on its net rental profit under the same Non-Resident Landlords Scheme rules that applied to non-resident individuals. Finance Act 2019 brought non-resident companies fully within the corporation tax regime for both UK property income and, from a year earlier in April 2019, gains on UK land and property, aligning their treatment with UK resident companies rather than with individual landlords.

Do letting agents still deduct tax at source from rent paid to a non-resident corporate landlord?

Yes. The Non-Resident Landlords Scheme withholding mechanism was not switched off by the 2020 change. A UK letting agent, or a tenant paying rent of more than £100 a week directly, must still withhold basic rate tax from the rent unless HMRC has approved the landlord to receive it gross. What changed is only the tax the withheld amount is credited against: it now settles the company's corporation tax liability through its CT600 return rather than an income tax liability, which can leave a company that has losses, capital allowances or a low marginal rate with tax withheld throughout the year that is only refunded once the return is filed and processed.

Does moving to corporation tax change how loan interest is relieved?

Yes, materially. Under the old income tax rules, a non-resident company's finance costs were relieved on an income tax basis, similar to an individual landlord. Once brought within corporation tax, the same company's borrowing is instead governed by the loan relationship rules, which generally give full relief for genuine commercial interest as it accrues, subject to the corporate interest restriction capping net interest deductions once they exceed £2 million a year across a group. For a highly geared overseas-owned property company, that shift is often the single biggest change in the whole 2020 reform, in either direction depending on the structure.

Do non-resident companies need to file a UK corporation tax return even if they've always used the NRLS?

Yes. HMRC automatically registered non-resident companies with an existing UK property business for corporation tax around the April 2020 changeover, and any non-resident company starting a UK property business since then needs to register for corporation tax directly rather than simply registering under the historic NRLS income tax process. That means a CT600 return, computations, and iXBRL-tagged accounts unless a specific exemption applies, in place of the shorter income tax return the company would have filed before 2020.

This article is general information, not personal tax advice, and tax rules change. Your own position depends on facts we cannot see from here — please take advice before acting on anything above.

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