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A building, or part of a building, may be a public infrastructure asset of a company if at any time the company, or another company within the worldwide group at that time, carries on a UK property business consisting of or including the building or the part of a building and;
a) the building or the part of a building is, or is to be, let on a short-term basis to persons, who at that time, are not related parties of the company or companies;
b) the building or the part of a building has an expected economic life of at least ten years; and
c) the building or the part of a building meets the group balance sheet test.
A building, or part of a building, is let to a person if that person is entitled to the use of the building or part under a lease or other arrangement. This let (or other arrangement) is considered to be short term if it has an effective duration of less than fifty years and is not considered a finance arrangement.
For the purposes of this test, references to let and leases can be read as including sub-let and sub-leases.
What does this all mean?
For interest on loans to third parties, assuming that the other conditions are met, this provides a useful escape from the restrictions. However, it does mean that the traditional use of shareholder debt to provide a tax shelter is effectively dead.
Potential changes to the tax treatment of non-resident companies
As we covered in our newsletter at the time, the government announced at Autumn Statement 2016 that it would explore the case for moving non-resident companies from the income tax regime to the corporation tax regime. The consultation document on this has now been published and can be found here. The key driver for the change is the desire to bring non resident companies within the new interest deduction and loss offset rules. The former are likely to have the greater impact on real estate investors and have been covered extensively in this newsletter. However, bringing non-resident companies into the corporation tax rules
The closing date for responses to the consultation is 9th June 2017, with the response from the Government to be published in the Autumn.