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Tax Aware FAQ: What taxes do I need to consider when buying or selling UK property?

Posted on 15 September 2022

Stamp Duty Land Tax (SDLT)

Buyers and recipients pay SDLT on "slices" of money or money's worth given for UK property (inclusive of any VAT). The SDLT rates range from 0% to 17%, according to:

  • the consideration;
  • whether the property is residential, commercial or mixed;
  • the number of properties purchased; and
  • the buyer(s): their type, residence, intentions and relationships.

Capital Gains Tax (CGT) and Corporation Tax

Persons disposing of UK property (via sale or gift) may be liable to CGT on gains earned (or deemed to be earned), depending on the transferor and property type.

CGT applies to individuals and trustees, and the rate differs for residential property, ranging from 10% to 28%. Reliefs are available for transfers between spouses and sales of main residences, subject to certain conditions.

Corporation tax applies to corporate sellers, currently at 19%, subject to group relief, among others.

Inheritance Tax

Direct holdings of UK property, and most indirect holdings of UK residential property, are subject to inheritance tax for individuals and trustees on the net value of the interest, unless reliefs or any nil-rate band (currently £325,000) are available. The rate of inheritance tax on death is 40%.

Indirect holdings of UK non-residential property may fall outside of the inheritance tax net for non-UK domiciled individuals and certain trusts.

Rental Profits

Rental profits are subject to income tax (for individuals and trustees) at up to 45% or corporation tax (for companies), subject to allowances. Mortgage costs may be deductible in whole or in part, depending on the landlord and property.

Overseas landlords of UK residential property may be subject to 20% withholding tax under the "Non-Resident Landlord Scheme" (NRLS).  

Rent on commercial properties that have been "opted to tax" may be subject to VAT at 20%.

Other taxes

Companies holding UK residential property worth at least £500,000 may be subject to the annual tax on enveloped dwelling (ATED) at up to £244,750 per year unless a relief is claimed.

Tax Reporting

Transactions involving UK property must be reported to HMRC. The deadlines vary for each tax type.

The "legal owner" of UK property must be registered at HM Land Registry.

The "beneficial owner" of UK property may have to register on the Register of Overseas Entities (ROE) if buying via overseas entities.

Trust arrangements (including bare trusts) over UK property may be registerable under the Trust Registration Services.

Planning

Choosing the right property structure for the right property may allow for tax efficiencies.

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