IFM40815 - Overseas property business: overseas property income: examples

FA22/SCH2/PARA52

Example 1

A QAHC invests in property in a foreign jurisdiction which has a corporate tax rate of 10 percent. The QAHC overseas property profits resulting from this investment are £100,000. Tax of £10,000 is therefore due in the foreign jurisdiction; it is accepted that this tax is charged on income and corresponds to UK corporation tax.

PARA 52(1) provides that the QAHC overseas property profits are exempt from UK corporation tax to the extent that they are taxable in the foreign jurisdiction.

The QAHC overseas property profits are taxable in the foreign jurisdiction according to the criteria in PARA 52(3), therefore they will be exempt from UK corporation tax.

Example 2

A QAHC has an overseas property business which consists of 8 properties in Jurisdiction A and 2 properties in Jurisdiction B.

Jurisdiction A has a corporate tax rate of 10 percent and it is accepted that this tax is charged on income and corresponds to UK corporation tax, while Jurisdiction B has a corporate tax rate of 0 percent.

The QAHC overseas property profits of this overseas property business is £100,000. These profits are attributable as follows: £70,000 to Jurisdiction A; £30,000 to Jurisdiction B.

In accordance with PARA 52(1) and PARA 52(3), the £70,000 QAHC overseas property profits which are taxable in Jurisdiction A are exempt from UK corporation tax.

The £30,000 QAHC overseas property profits attributable to Jurisdiction B do not meet the criteria in PARA 52(3) as they are chargeable at a nil rate. They will not be exempt from UK corporation tax in accordance with PARA 52(1), and therefore will be chargeable to UK corporation tax under CTA09/PT4/CH3.

Example 3

A QAHC has an overseas property business which consists of 8 properties in Jurisdiction A, 5 properties in Jurisdiction B, 4 properties in Jurisdiction C, and 5 properties in Jurisdiction D.

Jurisdiction A has a corporate tax rate of 10 percent and it is accepted that this tax is charged on income and corresponds to UK corporation tax.

Jurisdiction B imposes a withholding tax (WHT) charge on payments of rent of 10 percent.

Jurisdiction C has a corporate tax rate of 0.25 percent and it is accepted that this tax is charged on income and corresponds to UK corporation tax.

Jurisdiction D has a corporate tax rate of 0 percent.

The QAHC overseas property profits of this overseas property business is £200,000. These profits are attributable as follows: £70,000 to Jurisdiction A; £30,000 to Jurisdiction B; £60,000 to Jurisdiction C; and £40,000 to Jurisdiction D.

The corporation tax charge in Jurisdiction A is charged on income and corresponds to UK corporation tax. In accordance with PARA 52(1) and PARA 52(3), the £70,000 QAHC overseas property profits which are taxable in Jurisdiction A are exempt from UK corporation tax.

The WHT charge imposed in Jurisdiction B is charged on income and corresponds to UK income tax. In accordance with PARA 52(1) and PARA 52(3), the £30,000 QAHC overseas property profits which are taxable in Jurisdiction B are exempt from UK corporation tax.

The corporation tax charge in Jurisdiction C is charged on income and corresponds to UK corporation tax. In accordance with PARA 52(1) and PARA 52(3), the £60,000 QAHC overseas property profits which are taxable in Jurisdiction C are exempt from UK corporation tax.

The £40,000 QAHC overseas property profits attributable to Jurisdiction D do not meet the criteria in PARA 52(3) as they are chargeable at a nil rate. They will not be exempt from UK corporation tax in accordance with PARA 52(1), and therefore will be chargeable to UK corporation tax under CTA09/PT4/CH3.