New rules targeting offshore companies and individuals that make profits from trading in and/or developing UK land subject to UK tax came into effect on 5 July 2016.
Previously, a non-UK tax resident company was only liable to pay UK corporation tax on the profits of a trade carried on by it through a permanent establishment in the UK. The new rules, contained in the Finance Act 2016, extend the scope of UK tax so that non-UK tax resident companies with profits from trading in and/or developing UK real estate will be liable to pay corporation tax irrespective of whether that company has a UK permanent establishment or not.
The changes will mean that some offshore traders in and/or developers of UK real estate will become liable to UK corporation tax, although in reality many offshore structures were already in the process of being wound down due to the introduction of the UK's diverted profits tax in 2015.
These rules continue the recent trend of eroding the territorial scope of UK tax on real estate following the introduction of the annual tax on enveloped dwellings (ATED) in 2013 and extensions of the capital gains tax charge to non-UK tax residents in 2013 and 2015.
The new regime will have a limited effect on UK tax resident companies that are already fully within the charge to corporation tax on property development.
An equivalent change to UK income tax applies to profits from trading in UK land by non-resident individuals.