Considerations for non-UK residents buying UK residential property

Natasha Heron, from Hillier Hopkins, has written an article on the subject of the considerations for non-UK residents buying UK residential property.

The United Kingdom is a desirable location for people considering purchasing residential properties as either permanent homes, holiday homes or investment opportunities.

It is important to consider the potential tax implications of purchasing in the UK before taking the plunge. In recent years, the Government has implemented a number of tax schemes to discourage the indirect ownership of residential property in order to increase transparency of the ultimate owners.

If the purchase is to include debt, a mortgage adviser can advise as to the level of borrowing available as if an individual has less than two years of residency in the UK they may face more stringent requirements and a larger deposit. Before browsing properties offered by estate agent’s it is important to speak to a tax specialist as bringing money into the UK to fund the deposit or purchase can trigger tax charges.

Tax considerations of purchase

The structure of the purchase will be dependent on intention; for example, if you are looking to reside in the property it is advisable to hold the property personally. If the property is for investment purposes, a corporate structure may be beneficial.

Companies are required to prepare annual accounts, submit corporation tax returns and are subject to corporation tax. The current rate is 19% however this is set to increase to 25% in 2023. If a property is valued over £500,000, it is within the scope of Annual Tax on Enveloped Dwellings (“ATED”). This is a scheme designed to annually penalise companies if properties are occupied by someone connected to the company. The annual charge and reporting compliance considerations should be reviewed before purchase.

Depending on where the property is located, it will be subject to land tax at purchase. Stamp Duty Land Tax (“SDLT”) is chargeable on properties located in England and Northern Ireland. Scotland operates Land and Building Transaction Tax (“LBTT”) and Wales operates Land Transaction Tax (“LTT”). The rates differ between the schemes but the principals are largely the same. This article considers SDLT only.

If the purchase is within the scheme of ATED is also potentially subject to a 15% flat rate of SDLT. Exemption to the normal residential rates is available if a property is being purchased for a qualifying use, for example if it is being let to a third party on a commercial basis.

In addition to the normal residential rates purchasers should consider the additional surcharges. In April 2021 a 2% non-UK resident surcharge was introduced. There are specific tests to determine if a purchaser is deemed to be non-UK resident and the potential to claim a refund. A 3% surcharge is applied if the purchaser is a non-natural entity (i.e. a company) or if the purchase is a second home or investment property. The surcharges are calculated on the total purchase price.

SDLT is chargeable at completion and is payable to HMRC within fourteen days.

Tax considerations of operating

If the intention is to let the property rental income will be received. Companies report this income within its corporation tax returns. If owned personally, the income is taxable at an individual’s marginal rate of UK Income Tax (“IT”) whether they are UK or non-UK resident. Companies and individuals are subject to different rules when determining the level of rental profits as individuals may be restricted on the tax deductible amount for mortgage interest expenditure.

Tax considerations of future sale

Capital Gains Tax (“CGT”) at 18% or 28% is payable by UK and non-UK residents. Reliefs are available if the property was occupied personally at any point throughout ownership. Gains are reportable and payable within 30 days of the sale.

Companies report sales proceeds in their corporation tax returns and are subject to different payment terms.

Overview

The above briefly describes some of the considerations non-UK purchasers should consider before purchasing residential property in the UK. Each purchase should be considered on its own merits and for your specific circumstances. It is important to source early and detailed advice from independent tax and legal specialists to avoid triggering unnecessary liabilities.

Natasha Heron, Hillier Hopkins LLP

Written by Natasha Heron, who is the Tax Manager at Hillier Hopkins, specialising in property taxes. She can be reached by email: [email protected]. Visit www.hillierhopkins.co.uk.

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