A non-resident ceasing to have a PE

by **Incredulum** on Thu Sep 22, 2011 5:52 pm

A non-resident company commences construction of a block of flats in the UK, giving rise to a PE. It sells the long leases (being subject to UK CT) and then ceases trading becomes a non-resident landlord - in receipt of rent from ground rents and from a shop on the ground floor of the block.

Is there an exit charge on becoming non-resident - giving rise to a taxable gain on the remaining assets?

by **maths** on Thu Sep 22, 2011 6:09 pm

I thought you said the company was already non-resident?

by **Incredulum** on Fri Sep 23, 2011 9:26 am

It is non-resident, but obviously it has a UK PE. Whilst it has a UK PE then on a strict reading of the legislation the rental profits are subject to CT, not IT - s19 CTA09 applying. I should have added "landlord" after non-resident.

As a non-resident company, if it has a UK PE then s10B TCGA "(1) the profits for the purposes of CT of a company not resident in the UK but carrying on a trade in the UK through a PE there include chargeable gains accruing to the company on the disposal of (b) assets situated in the UK and used or held for the purposes of the PE at or before the time the gain accrued."

by **maths** on Fri Sep 23, 2011 3:42 pm

S19 CTA 2009 only has relevance if the non-resident company is trading through a p/e.

The p/e in your example ceases to exist; the company is no longer carrying on a trade through it. The company now only receives passive investment income. Thus, s19 no longer in point.

Any passive income subject to income tax.

Subsection (2) of S10B TCGA 1992 precludes chargeable gains arising if, at the time of disposal, the company no longer trades through a p/e.

by **section 44** on Fri Sep 23, 2011 3:50 pm

Would there be an appropriation from trading stock to investment and therefore a deemed market value trading receipt?

by **Incredulum** on Fri Sep 23, 2011 4:10 pm

A good point but I do not think so. The shop unit was built as an investment, not as stock. Likewise, the freehold - which is what gives rise to the ground rents - I do not think ever became stock.

In this particular case the property was acquired as a rental property before being redeveloped, which I suggest makes the position safer. I do not feel however that this actually changes the analysis - it's perfectly possible for an entity to develop both an investment and stock at the same time.