UK Property Tax – they will get you in every way but…

Ok, dramatic headline, but there have been loads of changes over the last decade, so the tax landscape has changed dramatically in most developed countries as they attempt to maximise their own tax revenues and stop other countries from taking advantage of them.

So let’s take a look at the main taxes affecting investors in the UK. 

01 - Stamp Duty Land Tax

• All investors pay these:
  • Payable at the time of purchase of a property. The tax payable is a sliding scale from £500,000 upwards between 5% through to 12%.   
  • 3% Second Home 
• The only difference is a 2% Offshore Investor tax is for non-residents only.

So yes, this could mean you pay up to 15% for a local investor and between 5% and 17% as an international investor in UK property. Unfortunately, this is similar to most developed countries these days.

02 - Income Tax  

Income tax is not directly calculated on a property in the UK. However, if you receive rental income from a property you own in the UK, the rental income is considered taxable income and will be subject to income tax. The amount of income tax you pay will depend on your total UK taxable income and your UK tax bracket. In the UK, tax brackets range from 0% to 45% and are based on your taxable income for the tax year.

If buying in a personal name, your tax will be limited to 20% rate for mortgage deductibility, this is a bit more complex so it’s best if we explain this to you. Buying in a Company structure allows for full deduction of all mortgage costs.

03 - Capital Gains Tax

Capital gains tax (CGT) in the UK is a tax on the profit you make when you sell a property that is not your main home.

The current rate of CGT in the UK is either 18% or 28%, depending on the total amount of your taxable income and the capital gain from the property sale.

It's important to note that there are exemptions and allowances that can reduce the amount of CGT you owe, such as the annual exempt amount, which allows you to make a certain amount of capital gains tax-free each tax year. 

Additionally, if you (or your kids) have lived in the property for at least a year, you may be eligible for the main residence exemption, which can exempt all or part of the gain from CGT.

04 - Inheritance Tax 

Better known as ‘death tax’ this is tax paid on the value of the estate over £325,000 at the time of passing. Due to the ongoing nature of companies and trust you can avoid paying this. However if held in a personal name then it would be either deferred to your husband/wife or paid as part of the estate.

05 - Annual Tax on Enveloped Dwellings

This is only paid where a property is owned by a company or trust and the property is above £500,000 at the reference date. You are also likely to be able to claim a full rebate as long as the property is rented out. This is more complex than this email so speak to a professional. 

Offshore Trust holding UK Property

It's important to note that the tax rules for offshore trusts holding UK property can be complex and may depend on a number of factors. 

Get professional tax advice to make sure you're following UK tax laws and to find out what your specific tax obligations are. We, of course, can help with this.

If you'd love to chat, we can certainly put you in touch with our partners who work on the UK tax side. 

Live with passion,
Brett