When a non-UK resident wishes to buy property in the UK there are a number of different taxes for that individual to consider which could affect them and their purchase. Matters have been made more complicated in recent years by a multitude of changes to UK tax legislation.
If a property is bought with the intention of being rented out, then a withholding tax of 20% will be deducted from the landlord’s gross annual rental income from that property. To avoid paying this additional tax, the individual would need to register with HMRC under the Non-UK Resident Landlord Scheme and once registered, would be able to receive the gross rental income but will have to submit a tax return each year and pay income tax at 20% on the net rental profit.
Income tax is also paid by non-resident companies under this scheme, although it is the intention of HMRC that from April 2020, corporate businesses will be brought within the Corporation Tax regime. They will then be governed by corporation tax rather than income tax rules.
Capital Gains Tax
Under the Annual Tax on Enveloped Dwellings (ATED) rules, non-resident corporate landlords became liable to Capital Gains Tax from April 2013. Originally this was for residential properties valued in excess of £2 million, but this limit has been reduced, and now applies to properties valued in excess of £500,000.
From April 2015, all residential gains - not just those of corporates - were brought into charge. Any gain accruing from April 2015 to the date of sale will be chargeable. Market valuations therefore need to be obtained as at April 2015.
The rules have been extended further and with effect from April 2019, the intention is that commercial properties and any indirect interests in all properties will be subject to Capital Gains Tax. This will be calculated by reference to any gain accruing from April 2019.
Properties situated in the UK are liable to Inheritance Tax (‘IHT’). Prior to April 2017, residential properties held through offshore companies were excluded however, this is no longer the case.
Stamp Duty Land Tax
All property purchases have been affected by the recent increase in SDLT. However, where a company, or what can be termed as a ‘non-natural person’ (such as a non-resident company or entity) acquires a property costing in excess of £500,000, there is a potential tax rate of 15%. If the entity is a lettings business or developer, exemptions are available.
In conclusion, a non-resident needs greater awareness of the rules and potential pitfalls within this area of taxation that has evolved considerably in recent years.