In the last few years, the UK government has increasingly focused their attention on non-resident property owners. British expats abroad, and foreign overseas residents, have faced increasing tax bills in the UK when they come to buy, own, sell and rent property in the UK.
However, there may be a limited time period (from 8 July 2020 until 31st March 2021) in which property buyers can receive a significant saving on their typical tax bill when purchasing a UK residential property.
To explain what this saving is and to help you get to grips with the various charges that you may face, here’s a brief guide to five of the main UK taxes that are payable.
Stamp Duty Land Tax (SDLT)
SDLT is payable on the acquisition of residential property in England and Northern Ireland and is payable on a scale that rises to 12% for properties worth over £1.5 million.
In April 2016, the government introduced a supplementary SDLT surcharge of 3% on the acquisition of ‘additional residential properties’.
This meant that overseas buyers (whom currently own a property or a share in a property worth over £40,000) currently have to pay a minimum of 3% on residential properties and a maximum of 15% SDLT on properties worth over £1.5 million.
Recently, the UK Government announced that, from 8 July until 31 March 2021, no stamp duty would be charged on the first £500,000 of the value of residential properties. This temporary change could save a buyer up to £15,000 in tax which would otherwise have been due. The supplementary SDLT surcharge (3%) will still apply on the whole value of the property (on properties bought for £40,000 or more).
In the 2020 Budget, the Chancellor announced that, from April 2021, an additional 2% SDLT surcharge would be paid by non-UK residents on the purchase of UK property. This raises the potential top-level of SDLT for a non-UK resident to 17%.
Note also that residential properties in England and Northern Ireland purchased by non-natural persons (enveloped properties) for more than £500,000 incur a flat 15% SDLT rate unless a relief is available.
Capital Gains Tax (CGT)
Before 6 April 2015, no CGT was payable by non-UK residents on the disposal of a UK property. Since that date, the CGT regime has been extended to cover any capital gains arising on the sale of UK residential property by non-UK residents, irrespective of value.
Since 6 April 2019, non-UK resident individuals have become subject to CGT on the disposal of all UK land and property. CGT is paid at the higher rates applicable to residential property gains (18% or 28% depending on your marginal rate of Income Tax).
The sale must be reported, and any CGT is due within 30 days of the sale.
In April 2019, all residential property gains realised by non-resident companies were brought into the Corporation Tax regime.
Any gains by a non-resident company are now subject to Corporation Tax (currently 19%). This includes residential property disposals by diversely held non-resident companies.
Since 6 April 2017, all UK residential property falls under the scope of UK Inheritance Tax (IHT), regardless of where the ultimate owners of the property live or how the property is ‘enveloped’.
For example, if you are a non-UK domiciled individual with a London property in a BVI company, on a gift of shares in the BVI company or on your death, IHT will potentially be payable. Similarly, if you held this property through a partnership or a trust, it would also fall under the IHT rules.
On the death of the owner, IHT will be due at a rate of 40% on the value of the property, except on property which falls within your nil rate band, which is currently £325,000, and any spouse or charity exemptions that apply. Any debt secured on the property may be deducted subject to certain conditions – for example, the debt must be repaid after death.
If a property is owned by an individual, it is ‘rebased’ on the owner’s death. If the individual holds shares in a company that owns the property, the shares are ‘rebased’ but not the property.
Annual Tax on Enveloped Dwellings (ATED)
From April 2013, companies that own UK residential property valued at more than £500,000 have had to pay an annual tax, known as ATED.
You must complete an ATED return if your property is:
- A UK dwelling
- Valued at more than £500,000 (from 2016/17 onwards)
- Owned completely or partly by a company, partnership where any of the partners is a company or a collective investment scheme – for example a unit trust or an open-ended investment vehicle
In the 2020/21 tax year, the annual chargeable amounts are:
|Property Value||2020-21 annual chargeable amount|
|£500,000 to £1 million||£3,700|
|£1,000,001 to £2 million||£7,500|
|£2,000,001 to £5 million||£25,200|
|£5,000,001 to £10 million||£58,850|
|£10,000,001 to £20 million||£118,050|
|Over £20 million||£236,250|
Until 6 April 2017, landlords could deduct the cost of finance (mortgage loan interest, arrangement fees, etc.) as an ‘allowable expense’ when calculating their Income Tax liability.
Since April 2017, the government has been gradually phasing out this relief. In 2020/21, landlords can no longer claim tax relief on allowable finance costs. Instead, from April 2020, they will receive a 20% tax credit on interest payments.
These restrictions apply to individuals, partnerships and trusts, and apply equally to residential property situated in the UK and worldwide.
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