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Understanding Property Tax In The UK For Foreign Investors

Contributed by Property Finance Partners
July 27, 2018

If you own property or harbour any intention to buy any form of property in the UK, you need to fully grasp all the facts about the UK property tax. It is worth your time to familiarise yourself with the following UK property tax information to be able to effectively handle your property finances and avoid trouble with the authorities.

Stamp Duty Land Tax

Stamp duty land tax abbreviated SDLT was initially formulated and implemented in 2003 and has undergone necessary reviews and revision in 2014 and also in 2015. The stamp duty is paid upon purchase of any land or property in Britain. It is applicable to most property sales and even transfers. You need this information when planning for your property finance.

For those who do not own land or any other British property, the following amounts are payable to the HM Revenue and Customs:

  • 0% to a maximum of £125,000
  • 2% from £125,000 to £250,000
  • 5% from £250,000 to £925,0000
  • 10% from £925,000 to £1,500,000
  • 12% on property above £1,500,000

For those who purchase any property on a second-hand basis either for personal use or to let, they are liable to 3% extra above the standard rates as shown below. This was effected in 2016.

  • 0% to a maximum £40,000
  • 3% from £40,001 to £125,000
  • 5% from £125,000 to £250,000
  • 8% from £250,000 to £925,0000
  • 13% from £925,000 to £1,500,000
  • 15% on property above £1,500,000

There are some other SDLT reliefs as well, special rules for: corporate, charities, multiple buying, and registered social landlords. In addition, from the 22nd of November 2017 there is a SDLT relief for first time buyers that will pay:

  • 0% to a maximum of £300,000
  • 5% from £300,000 to £500,000

The stamp duty is paid by anyone that buys property in the UK whether one is a foreigner or not. There are never any exemptions on stamp duty land tax except in rare cases when the property a gift or is in a will. To avoid penalty it is advisable to pay the duty on time.

Hanan Shapira CEO of Property Finance PartnersUK property loans company states "It's vital for anyone thinking to invest in the buoyant UK property market to understand their tax obligations, to avoid any pitfalls in the future"

Income Tax On UK Property

The other property tax in the UK is the income tax on any UK property. All proceeds from a land, house or any other British property is required by law to pay the income tax. This knowledge come in handy to protect your property finance. There is an income tax-free allowance for non-resident expats in the UK as shown below.

In 2016 to 2017, the personal allowance was £11,000 while in 2017 to 2018, the personal allowance rose by a small margin to £11,200. The basic rate limit for the year 2016 to 2017 was £32,000 and increased to £32,400 in 2017-2018. As for the threshold in the higher rate, it was £43,000 in 2016 to 2017 and £43,600 in 2017 to 2018.

Threshold Rate %Taxable income in £
Allowance 0To a maximum of 11,000
Basic rate 2011,001 to 43,000
Higher rate limit 4043,001 to 150,000
Additional rate 45above 150,000

Property owners are allowed to make the following deductions from their income before the tax due is calculated and paid,

  • Costs related to property maintenance
  • Costs on mortgage interests
  • Fees levied by letting agents
  • Council tax (where applicable)
  • Utility bills (where applicable)

Partners in ownership of the property are treated separately with respect to the shares they hold in the property finance.

Capital Gains Tax (CGT)

If you sell any property in the UK, you are required to pay Capital gains tax calculated from the profit made during the sale. The calculations of tax also include any improvement you might have made on the property during your stay. The CGT rate is 28% for taxable income above the basic rate threshold and 18% below the basic rate band.

In some cases like inherited property, the tax due is calculated from the property market value. This is applicable if the property was acquired before 31st March 1982.

There is private residence relief (PRR) on capital gains tax if you are selling your main house of residence. This is granted to both residents and non-residents if it can be proven that you have lived in the house for more than 90 days.

Annual Tax On Enveloped Dwellings (ATED)

The annual tax on enveloped dwellings (ATED) was introduced to indirectly discourage people from holding residential property of high value in the UK. You are required by law to pay ATED tax for any British dwelling as per the charges below.

Value of property Charge per year

  • £500,000 to £1 million £3,500
  • £1 to £2 million £7,000
  • £2 to £5 million £23,350
  • £5 to £10 million £54,450
  • £10 to £20 million £109,050
  • Above £20 million £218,200

Inheritance Tax (IHT)

This is the tax levied on inherited property in the UK. Due to the fact that the domicile country is fixed, any inherited property in the UK valued above £325,000 attracts a 40% inheritance tax. The knowledge of this tax can help you to plan accordingly for the inherited property finance.


Tags: tax | Tax | property tax | stamp duty | law | charities | interest | Finance | Capital Gains | inheritance tax



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