E&V London A4 - Flipbook - Page 62
E n g E l & Vö l k E r s | lO n D O n
UK Tax
for the foreign purchaser of Uk residential property, the question often arises as to how they should own it.
let’s deal with those taxes
Tax considerations for overseas investors
when buying UK residential property
You may be looking to buy somewhere to live in the Uk
having moved here from overseas, or you may be looking to
buy Uk property as a non-resident purely as an investment
or for personal use. Whatever the reason, it’s important to
understand the key Uk tax considerations when purchasing
and owning Uk residential property.
Coming to the UK to live as a resident
When you move to the Uk and buy a property here, much
like other countries, there is a purchase tax and legal fees
associated with the purchase. the amount of purchase tax
depends on a variety of factors including the price of the
property, your residency status at the time, whether you
own more than one property and how you structure the
ownership.
Where the property is owned personally and has always
been used as your main residence, you could be entitled to
a full exemption from any gain when you eventually sell the
property. alternatively, it may be possible to gift a property
qualifying for this exemption to the next generation tax free
as long as the property is not subject to a mortgage. this is
because there is no gift tax equivalent in the Uk where
assets pass from one individual to another.
in the absence of this main residence exemption, there will
be capital gains tax (“CgT”) to pay on any growth in value
when you sell the property. depending on the circumstances
you may be entitled to a modest cgt annual exemption.
Where a Uk property is sold at a gain, you will need to report
and pay the tax on any gain within 60 days (unless the gain is
covered by an exemption).
If you still own the Uk property on death, it will be subject to
Uk inheritance tax (“IhT”). The first £325,000 is tax free
and where your estate is below £2m, up to a further
£175,000 tax free allowance may be available. Debt taken
out for the purchase from a commercial lender may also be
deductible.
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depending on your circumstances, it should be possible for
you to obtain life assurance to cover any potential exposure
to IhT in the future.
Investing in UK property as a non-resident
Where you buy property as a non-resident, the purchase
tax will be 2% higher than for a Uk resident.
if you use the property yourself, it is possible for the cgt
exemption to apply on a subsequent sale but only in limited
circumstances (and great care needs to be taken to ensure
the criteria you need to meet for the relief does not
inadvertently cause you to become Uk resident!).
If instead you acquire Uk property as a buy-to-let you will
need to pay Uk tax on the rental profits under the nonresident landlord scheme. a personal allowance is available
to British and EEA citizens or may be available under certain
double taxation agreements.
You will be able to claim deductions for the usual expenses
incurred for the rental business and to the extent you have a
mortgage, you can receive a tax-credit, based on a
proportion of your mortgage interest payments.
Where the property is sold at a gain (and assuming the CgT
exemption is not in point), there will be Uk CgT which will
need to be reported and paid within 60 days of the sale.
Ownership structure
a key question will be whether the property should be
owned personally, via a company or perhaps using a trust. it
will not normally be beneficial for a property that is intended
to be used by the owner personally to be acquired via a
company. this is because there will be a higher rate of
purchase tax on acquisition and there are also significant
annual tax charges that can apply in those circumstances.
trusts may offer the advantage of asset protection, but
there will still be Uk purchase tax, CgT and IhT implications
to consider.
