Recent changes to UK residential property tax laws are a vital consideration when purchasing British property. In this three-part series,
Vicky Smallwood, Senior Manager at Alderley Global, and Beth Hirshfeld, Private Client Advisor at Christie’s International Real Estate Dubai,
explore considerations and opportunities in a booming UK market.
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The Lucan, in London’s fashionable Chelsea district, is part of a slew of upcoming luxury developments
The U.K. has always been a reliable real estate investment market, a trait that has seen it weather the pandemic, cost of living worries and geopolitical concerns remarkably well. With solid yields, strong capital appreciation and bespoke developments, some mentioned below, the country can present highly lucrative investment opportunities for nimble and decisive buyers.
However, the rules regarding the purchase of UK residential properties have changed significantly over the past 10 years, making it important to take advice well in advance of purchasing a property, particularly a high value one.
We have summarised the changes below and indicated what is coming:
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ATED: Short for Annual Tax on Enveloped Dwellings, this applies when UK residential property is owned by a company, excepting an exemption such as when the property is let on commercial terms to an unconnected third party. This is lost, though, as soon as the property is occupied, even for short periods, by family.
NRCGT: Non-Resident Capital Gains Tax is payable by non-UK residents who sell British residential property.
SDLT: Stamp Duty Land Tax is payable at rates of up to 17% on the purchase of UK residential property.
IHT: Short for Inheritance Tax, IHT is payable generally on an individual’s death (unless the property passes to a spouse) at a rate of 40% on the then market value of the property.
MTD: Making Tax Digital comprises new reporting requirements for landlords using MTD-compatible accounting software, and is likely to take effect in April 2024.
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Luxury residences, such as these branded by haute couture’s celebrated Elie Saab, have majorly contributed to London’s post-pandemic property boom.
Case Study – Rashid
Rashid is a GCC national. He recently bought a villa in Spain and is now planning to buy a house in London for £3m that he and his family will stay in when they visit. He may also let the property when the family is not using it. Rashid has decided not to use a loan to make the purchase.
Prior to the introduction of the legislation outlined above, Rashid would probably have been advised to buy the house through an offshore company, for protection against IHT.
He would have paid the same amount of SDLT regardless of whether he bought the house personally or through his company. If he decided to sell the property, he could have either sold the company, or the company itself could have sold the property. In either case, there would have been no capital gains tax, provided Rashid had not become a UK resident.
Fast forward to 2022 and the position is strikingly different. The rules are complex and potentially hard to navigate but can probably be best explained by comparing the differences between personal and corporate ownership. These are highlighted in the following articles.
Christie’s International Real Estate Dubai is an established player in the luxury real estate industry. Being the sole Middle Eastern affiliate of Christie’s International Real Estate, it is part of a worldwide network spanning 47 countries. This enables the company to conduct regional and global property transactions with a high level of expertise and discretion.
Headquartered in Dubai, Alderley Global (registered with the Institute of Chartered Accountants in England and Wales) primarily focuses on multi-jurisdictional tax advice and trustee services to address the common challenges faced by high and ultra-high net worth individuals and families across the globe.
Disclaimer: The content of this article is for guidance only. Professional advice should be obtained before acting on any information contained within this article. No responsibility can be accepted for loss occasioned to any person as a result of action taken or refrained from in consequence of these contents. Any reliance you place on such information is therefore strictly at your own risk.
