Want to buy a UK property as a non-resident? Here are five tax considerations

The pound’s value has dropped dramatically in recent times, and many foreign investors and expats in the UK are scurrying to buy UK property at unprecedented discounts.

If you, too, are looking to buy UK property, here are five tax and broader commercial, UK and overseas, considerations.

Remember, this article does not take into account your personal circumstances, and it’s important to speak to your tax advisor for specific advice.

1. Secure property financing as soon as possible to avoid later frustrations

If you’re a non-UK resident, it may be more difficult to obtain financing as many UK banks are under increasing regulatory obligations.

Several UK and overseas banks, however, are still lending to overseas investors, and the right relationships are essential to securing finance and determining a suitable lending structure.

2. Should I buy the property as an individual or through a company?

Whether it is best to purchase the property as an individual or a company structure will depend largely on two factors:

1. Whether you intend to live in the property, or rent it out
2. Your profile as an investor (such as your income, asset base, etc.)

Whether you acquire the property as an individual, or through a company, non-resident capital gains tax (‘NRCGT’) will apply to the sale of a UK property if you’re a non-resident.

However, the rate of CGT due will vary depending on whether you use to property to live in yourself (‘owner-occupied’), or to rent (‘buy-to-let’) and if the property is acquired by you individually or through a company. NRCGT will apply to all residential property, however, irrespective of whether it is rented or owner-occupied.

It should also be considered whether Principal Private Residence Relief (‘PPR Relief’) may be available to exempt or reduce any capital gain on sale.

Finally, your choice of structure will also impact the rental income tax paid.

3. Stamp Duty has increased for owners of more than one residential property

Stamp Duty Land Tax (‘SDLT’) is a compulsory tax payable on acquisition of a UK property, ranging between 0% and 12% of the total purchase price, if it is your first residential property.

If, however, you already own another residential property, new rules were introduced in April 2016 whereby a ‘higher’ rate of SDLT will apply:

£0 – £125,000 0 3%
£125,001 – £250,000 2% 5%
£250,001 – £925,000 5% 8%
£925,001 – £1,500,000 10% 13%
£1,500,001 and over 12% 15%

Applies to properties purchased under individual structures.

There are difference SDLT rates for property purchased via a company, and there are also instances where tax relief may apply for properties held in certain structures – speak to your personal tax advisor to discuss your individual circumstances.

4. Don’t let inheritance tax take more than your life away

When the owner of a UK property (over a certain value) passes away, the value of the property may be subject to up to 40% tax. This applies whether the owner of the property was based in the UK or overseas.

Furthermore, from 6 April 2017, UK residential property owned indirectly through a company or trust will also be subject to UK inheritance tax.

There are ways to potentially mitigate the impact of inheritance tax, including loans, life insurance and efficient estate planning.

5. You may also be subject to tax from your home country

The tax implications from your home country (for example, Australia, United States, Singapore etc.) will need to be considered when structuring the property acquisition.

For example, an Australian resident will be subject to tax on their worldwide income and assets. Compare this to a Hong Kong resident who will generally only be subject to income sourced within Hong Kong.

This document is intended as an information source only. The comments and references to legislation and other sources in this publication do not constitute legal advice and should not be relied upon as such. You should seek advice from a professional adviser regarding the application of any of the comments in this document to your fact scenario. Information in this publication does not take into account any person’s personal objectives, needs or financial situations. Accordingly, you should consider the appropriateness of any information, having regard to your own objectives, financial situation and needs and seek professional advice before acting on it. CST Tax Advisors exclude all liability (including liability for negligence) in relation to your reliance in this publication