Property Taxes Explained
There are a variety of taxes imposed
on UK residential property that you should be aware of before buying and
selling and taking expert advice beforehand can be essential.
Not only are UK residents liable to
pay tax on property, but increasingly foreign nationals seeking to invest in
this country are also finding that they have to pay as well.
Stamp Duty Land Tax (SDLT)
SDLT is payable when you buy a property
in the UK, whether it’s a house or a flat. The amount you pay will depend on
whether you are a first-time buyer, already a property owner and buying your
next home, buying a second home or ‘buy to let’ property, or, an overseas
The amount you will pay depends on
the purchase price. The applicable rate will depend on the value and type of property.
The SDLT rates are banded as set out below
Property or lease premium or transfer value
Up to £125,000
The next £125,000
(the portion from £125,001 to £250,000)
The next £675,000
(the portion from £250,001 to £925,000)
The next £575,000
(the portion from £925,001 to £1.5 million)
amount (the portion above £1.5 million)
First -Time Buyers
If you are a first-time buyer, you can claim a discount (relief) so you
do not pay any tax up to £300,000 and then 5% on the portion from £300,001 to
£500,000. You’re eligible if you, and anyone else you’re buying with, are
If the price is over £500,000, you follow the rules for people who’ve
bought a home before.
Second Home Owners and ‘Buy to Let’ Investors
If you are buying a second property in
the UK, a higher rate of SDLT is payable if you already own and will still own
a property anywhere in the world . The additional SDLT is levied at 3 per cent
on top of the existing rate and applies to the whole of the purchase price. The
higher rate of SDLT applies where the amount paid for a second property or
buy-to-let property is £40,000 or more .
There is an SDLT ‘surcharge’ if an individual
purchaser (or their spouse) of UK residential property already owns residential
property (anywhere in the world) and will continue to do so following the
purchase. The surcharge imposes an additional 3% of the relevant SDLT band. additional
3% may be reclaimed if you sell within 3 years
Inheritance Tax (IHT)
Inheritance Tax (IHT) is not payable
on estates worth less than £325,000. On the portion of the estate over the Nil-Rate
Band (NRB) of £325,000 IHT is payable at 40%. There are various reliefs are
available which can be claimed against IHT, for example, spouse exemption,
transferable NRB from the first spouse to die and the Residence NRB if property
is being passed to children or grandchildren. See our article on the Wills,
Trust and Probate page.
For non-UK domiciled persons in the
UK, IHT is payable on death, and on gifts into trust, on UK assets. UK
residential properties held via offshore companies are also caught and are
subject to IHT on a shareholder’s death.
Non-UK residents owning property in
the UK are strongly advised to make a Will in the jurisdiction of where the
property is situated (England and Wales) dealing only with their property in
this jurisdiction ensuring it goes to the persons they want to inherit and on
which the value will be subject to UK taxes, Inheritance Tax.
Capital Gains Tax
Capital Gains Tax (CGT) is not
payable on any gain made on a sale of your main residence. As you can only
claim this exemption on one property, if you sell a second home or ‘Buy to Let’
property and you make a gain CGT may be payable. A higher rate tax payer is charged
at 28% and a lower rate tax payer is charged at 18% of the gain. Purchase and
sale costs are deductible and you have a personal allowance which can be set
off against the gain and which can also be carried forward one year if unused.
As a non-UK resident, you don’t
escape from Capital Gains Tax. Non-resident Capital Gains Tax (NRCGT) has been
payable on gains made on a sale or disposal (gift) of all UK residential
property since 2015 and on commercial property since April 2019. The same rates
apply as with CGT.
Income Tax ‘Buy to Let’ landlords, or anyone
letting residential property or part of a property in the UK is liable to pay
income tax (IT) on the letting income. IT rates of between 0% and 45%, is
payable depending on the amount of rental income received. Non-UK resident
landlords must declare their rental income to HM Revenue and Customs and file a
UK tax return to and pay any income tax. Owning property can be a complicated business and if you worry you don't understand your potential liabilities we are able to provide you with the advice to need. Get in touch
To find out more or to find out how we can help you, call us on 01865 721 451