The UK Property Tax Maze


Owning a property in the UK has never before been fraught with so many complex and interwoven tax considerations; here we summarise the key issues to be aware of – whether you already have a UK property or are thinking of acquiring one.

In recent years, there have been more significant tax changes affecting the ownership of property in the UK than at any time in modern history, including special new provisions for non-UK resident owners.  In this short article we cannot do justice to the full detail or extent of this subject.  But for BAM, we highlight here the main issues to be aware of in respect of each of the key taxes:

Inheritance Tax (IHT)

Previously mainly applicable to individual direct property owners and trusts, IHT has now become chargeable also where an individual owns a UK property via an offshore company (including where that offshore company is itself owned by a trust) – even when the individual is not domiciled in the UK.

Capital Gains Tax (CGT)

All individuals and trustees (whether UK resident or not) are now subject to capital gains tax (CGT) on direct disposals of UK property, whether that is residential or commercial property. In addition, all offshore companies are now subject to UK corporation tax (19% but likely rising in 2021) on chargeable gains on direct disposals of UK property, both residential and commercial. Principal private residence relief on residential properties for non-resident individuals has been restricted and strict qualifying rules now apply.

Stamp Duty Land Tax (SDLT)

The SDLT Surcharge is a new additional tax on top of existing residential rates of SDLT (including the current three percent ‘additional homes’ surcharge and the flat 15 percent rate for non-resident companies) applied where a non-UK resident (trustee, company or individual) purchases residential property. The surcharge is due to come into force in April 2021 and will be charged at 2%.  It will have a dramatic effect on the potential top rate of SDLT payable by non-UK resident purchasers – 17%!

Annual Tax on Enveloped Dwellings (ATED)

ATED is chargeable annually on resident or offshore companies owning UK residential property with a value of more than £500,000. There are certain reliefs, eg where the property is let to a third party on a commercial basis and is not occupied or available for occupation by anyone connected with the owners.

The future?

With much speculation rife and the UK Budget coming up in March, could there be more changes?  The talk is of a new property tax to replace Council Tax and even a wealth tax.  Watch this space.

Please read our Legal Information on our website.