The UK government is converging its focus on residential property tax. Several changes have been made so far. The system got complicated after those changes. The rising real estate market in the UK has brought more overseas buyers to the market.

Before making your considerations about the property purchase, you have to look into the UK tax laws first. We will try to break it down for you.

What is Stamp Duty Land Tax?

On the purchase of a property, you have to pay Stamp Duty Land Tax in the UK. The property value and nature will determine the rate of the tax. The rate is divided into different bands which represent the different values.

You will have to pay a ‘surcharge’ if you or your spouse owns a residential property other than the UK anywhere in the world. The surcharge imposes a further 3% SDLT. This brings the applicable rates between 3% to 15%.

You can avail the reliefs that are available. There are circumstances where you can reclaim the additional 3%.

What if you make a purchase as a company?

If you own a company and the company is making a purchase, you will have to pay the punitive rate of 15%. This will be applicable to the whole purchase price.

You can look for the exemption in some scenarios. For example, if a rental business qualifies, the business can look for exemption.

Inheritance Tax and how it works?

IHT is payable on UK properties, assets, gifts into trust, and on death. This is for the people who don’t hold a domicile for the UK. The UK is also taxing residential properties since 2017 if they are held via offshore companies. They are subject to the Inheritance Tax on a shareholder’s death.

The rate is fixed at 40% above the Nil Rate Band of £325,000.

Multiple types of reliefs are available. People often avoid IHT by giving their properties to their children. This may sound exciting for you but going down that road has some serious tax disadvantages. That’s why you have to consult with an expert before making these kinds of decisions because this is the area where an expert accountant can make a difference.

What is Non-Resident Capital Gains Tax?

You have to pay NRCGT on profits made by the disposal of an asset.

Here are some conditions:

  • The rate of NRCGT is 28%, but in some cases, 18% may also apply.
  • You have to pay NRCGT If the value of the property increases significantly. The value will be measured with the difference between the price when bought your property and the current rate at which you are selling.
  • You have to pay the tax within 30 days and file your returns.

Do you have to pay NRCGT for gifts?

NRCGT comes into business with all disposals. You have to pay taxes even if you are passing on the gifts to your family members or someone else out of generosity.

If you are gifting an asset to someone, NRCGT is the least of your worries and you have to face some other tax consequences. Taking expert advice is important in this case. Our experienced accountants can advise you of NRCGT and its consequences.

Do you have to pay Annual Tax on Enveloped Dwellings?

ATED works with a threshold mechanism. In simple terms, if you own a property that is worth more than £500,000 as a company, you have to pay this tax.

The charge depends upon the value of the property. It can range between £3,650 and £232,350 per year. The charge will increase with the inflation rate each year.

You have to file ATED returns each year. The reliefs are there in some situations, but they have to be claimed annually.

Income tax and how it is related to property tax?

If you are buying a home and intent to put it out for rent then you have to pay tax on your income from rent. The tax rates range between 0% to 45%. This depends on how much you earn.

The landlords in the UK have to file tax returns on rental income to pay income taxes at the end of the tax year.