Are you an Australian looking to buy UK property? This blog articles talks about the 5 tax considerations on buying a UK property.
The UK property market remains attractive for foreign investors as a result of subdued property prices caused by Brexit and the weak pound. This is particularly so for Australian property investors given the relatively high level of Australian property prices and for Australian investors looking to diversify into the UK property market.
If you are a non-UK tax resident looking to purchase UK property, it is important to consider the tax and legal implications.
If you are a non-UK resident, it may be more difficult to obtain financing as many UK banks are under increasing regulatory obligations and restrictions.
However, certain UK and overseas banks are lending to overseas investors, and the right relationships are essential to securing finance and determining a suitable lending structure.
Whether it is best to purchase the property as an individual or a company structure will depend largely on two factors:
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 are 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.
Consider whether Principal Private Residence Relief (PPR Relief) could exempt or reduce any capital gain on sale.
Finally, your choice of structure will also impact the rental income tax paid.
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.
However, if you already possess another residential property, the rules introduced in April 2016 stipulate that a ‘higher’ rate of SDLT will be applicable.
|PROPERTY PURCHASE PRICE BAND||“STANDARD” SDLT RATE||“HIGHER” SDLT RATE|
|£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.|
SDLT rates vary for property purchased through a company, and certain structures may qualify for tax relief on held properties. Consult with your personal tax advisor to explore your specific circumstances.
UK residential property is subject to inheritance tax at the rate of 40%.
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.
When structuring the property acquisition, you should take into account the tax implications of your home country, such as Australia.
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. 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.
Please do not hesitate to get in contact with us to discuss your circumstances further and we would be happy to assist you further.