On 18 March 2021, HM Revenue and Customs (HMRC) issued further guidance and examples for non-UK resident companies that are party to a derivative contract for the purpose of their UK property rental business.
In particular, profits and losses from derivative contracts used as part of the United Kingdom (UK) property business are treated in a similar way to loan relationships, meaning that the credit and debit amounts of a derivative contract are included in the calculation of the non-trading loan relationship profit or deficit for the period. In addition, non-UK resident companies carrying out UK property rental businesses may opt into the Disregard Regulations, and hence "disregard" fair value movements and instead bring these amounts into account in line with the hedged item. Further guidance and examples may be found here.
Until 5 April 2020, non-UK resident companies that carried on a UK property rental business were subject to UK income tax on profits of that business at a rate of 20%. From 6 April 2020, this has changed and those companies have been instead subject to UK corporation tax on their profits (including profits from loans or derivative contracts that a non-UK company has entered into for the purpose of their UK property business) at a rate of 19%.
This measure formed part of the UK government's objective to align the UK tax treatment of UK and overseas investors in UK property, with the aim of reducing the incentive to hold property through offshore structures.