Investing in UK Property as a non-resident: key tax considerations – Part 1

Part 1 – Personal ownership

If you're based overseas and looking to invest in UK property, understanding the tax implications is crucial.  This first post outlines the main UK tax considerations when owning property personally.  A second post will explore ownership through a company.

This is a whistlestop tour, so it will not cover every aspect of each tax.

 Residency assumption

We assume you're non-UK resident under the Statutory Residence Test, which determines UK tax residency status.  Should you need advice in this area, then please get in touch.

1. Stamp Duty Land Tax (SDLT)

When you buy UK property, SDLT applies to the purchase price.  The progressive rates that apply differ based on whether the property is residential or commercial:

• Residential: Up to 12%, with potential surcharges:
  +2% for non-UK residents
  +5% if you're not replacing a main residence
• Commercial: Up to 5%.

Conveyancers usually handle the submission of the SDLT return.

2. Income tax on rental income

 Rental income from UK property is taxable even if you're not UK-resident.  The tax year runs from 6 April to 5 April.

Rates:

You may be entitled to a personal allowance (£12,570), which tapers off above £100,000 of income.

A non-UK individual may be eligible for the UK Personal Allowance under some circumstances.  The relevant circumstances include being an EEA national, resident of the Channel Islands or the Island of Man, employee of the crown or resident of a country in which the UK has a double tax treaty which entitles residents to a Personal Allowance.

Under the non-resident landlord scheme, letting agents (or tenants, if there's no agent) are required withhold 20% of the rents and pay this directly to HMRC.  It is possible to apply to HMRC to receive the rental income gross, if your tax affairs are up to date.  This is something we can assist with.

You will likely be required to file annual self assessment tax returns, which are due by 31 January following the end of the tax year, with payment due on the same day.

If you co-own the property, each owner reports their share separately on individual tax returns.

3. Capital Gains Tax (CGT)

CGT is payable on any gain when you sell or gift UK property.  Gains are calculated from the acquisition price, minus allowable costs like capital improvements.

Key points:

• UK property disposals must report to HMRC within 60 days of completion by non-UK residents.
• You will need to register with the UK Government Gateway account in order to submit a CGT return, even if you have an accountant who are submitting on your behalf.  This is because the Gateway is used in the authorisation process.
• If selling to a connected party (e.g., family), market value is used regardless of the sale price.

Good recordkeeping is essential, as the sale may be far into the future.

4. Inheritance Tax (IHT)

Non-UK residents are only liable for IHT on UK assets, including property.  The main chargeable events are death or transfers into a trust.

 Thresholds & rates:

• £325,000 nil-rate band.
• 40% on the excess (reduced to 36% with sufficient charitable donations).
• Extra £175,000 nil-rate if your main residence is passed to direct descendants.

Gifts made during your lifetime can also be subject to IHT if you die within seven years, although relief may apply based on how many years have passed since the gift.

Spousal transfers are exempt, and unused allowances on death can be transferred between spouses, potentially shielding up to £1 million on second death once the main residence is factored in.

However, if the UK estate exceed £2 million then the residence nil rate band will be reduced.

5. Wills and ownership types

How you own the property affects inheritance:

• Joint Tenants: Own the property together in equal shares.  The deceased’s share automatically passes to the other owner(s), regardless of their will.
• Tenants in Common: Each owner has a distinct share, which can be passed on via a will.

Proper estate planning is vital for tax efficiency and to ensure your wishes are followed.

Next time:

In the next blog, we’ll look at UK tax implications of owning property through a company.