If you are a non-resident buying a property to rent it out, the UK has clear tax regulations. Additionally, you could be liable to pay tax if you sell property and make a capital gain.
These are the main taxes you should be aware of when purchasing or selling a property in the UK.
Stamp Duty Land Tax (SDLT)
This is a registration tax all buyers need to pay on the purchase of a property. It is set in a tier system with price brackets and increasing tax rates for higher values. The recent increase in the SDLT has impacted all property purchases. Non-residents, businesses and trustees will pay an additional 2% SDLT on residential property purchases from 1 April 2021. You may be exempt if you are in a lettings business or a developer. There is an additional 3% surcharge if you are buying to let the property.
If you purchase a property from a company and the property’s value exceeds £500,000, a 15% SDLT flat rate will be applied. You may be eligible for some exemptions, such as when the purchase is made for renting purpose as part of a rental business or property trading/ development business.
If you purchase shares in a property holding company then SDLT is not payable. However, there are some drawbacks of investing in said company that you should discuss with your tax advisor one of which is ATED (Annual Tax on Enveloped Dwellings).
Capital Gains Tax
This is due at a rate of 28% on any profits realised on the sale of residential property by all sellers. An exemption is possible on the disposal of your only or main residence by gift or sale. Individuals are eligible for this, but companies are not.
If a property is purchased to rent out, a 20% withholding tax is charged from the landlord’s gross annual rental revenue from the property. To avoid paying this additional tax, the individual must register with HMRC under the Non-Resident Landlord Scheme and receive the gross rental revenue once registered. They would be required to file a self-assessment form each year and pay income tax on the net rental profit at a rate of 20%.
Regardless of your resident status, if you purchase a residential property in the UK, you will be subject to inheritance tax. On your demise, 40% inheritance tax is payable on the value of all UK assets. The debts on the property may reduce the amount subject to inheritance tax. Property transferred between spouses is normally exempt subject to limitations when you pass the property to the surviving spouse, who is a non-UK domiciled individual.
By procuring a mortgage on the property at the time of purchase, you can limit your liability to inheritance tax. You may also seek life insurance to cover any inheritance tax liability associated with the property’s equity.
We always recommend speaking to a tax advisor or tax accountant to understand what way to structure your purchases. We have partners whom we are happy to introduce you to for a conversation.