Whether you are purchasing or marketing a home in the UK, there are many things to consider. At Seddons, our experts can help you through the whole process of owning property in the UK, from buying to giving it away when you die.
We can help you whether you want to flip a house for a quick profit or build a long-term investment portfolio. We’ll take care of the little things and make the process as stress-free as possible so you can focus on the big picture.
When buying property in the UK, one of the first choices you’ll have to make is whether to buy a home or a business. The tax situation will be a big part of this choice. We have cracked down the different taxes to give you a quick look at how they are set and applied to different parts of property ownership.
Purchasing A Property
Stamp Duty Land Tax (SDLT)
SDLT is a tax the buyer must pay when buying a home or a business. It has to be paid on the purchase price, even if VAT has already been paid. SDLT is charged at different rates based on the type and value of the property. Here are some examples of the different ways to buy property:
Purchase of the buyer’s first or only home – Individual buyer
The buyer must be an individual, not a business, and the property must be their first or only home anywhere in the world. Then, the buyer will have to pay the Standard SDLT Rate, shown in the table below.
For first-time buyers of homes worth less than £500,000, SDLT is partly waived and is charged at a lower rate. Please note that the buyer’s spouse or civil partner is treated as part of the same unit as the buyer. This means that the Higher SDLT Rate will apply if the buyer’s partner owns a property anywhere in the world.
We are buying a second or more property – Individual buyer.
If the property isn’t the buyer’s first or only home anywhere in the world, they will have to pay the Higher SDLT Rate, which is 3% more than the Standard SDLT Rate.
A business buying a property
When a business instead of a person buys something, a flat SDLT rate of 15% is used. If there is an exception, like if you buy the property to turn it into housing development, the Higher SDLT Rate will be used.
The Value Added Tax (VAT)
Most of the time, VAT doesn’t apply to the sale of the property. But when selling business property, the seller can “opt to tax,” which takes away the exemption and makes the sale subject to VAT at 20% of the purchase price. Sellers can choose to tax if they spend money on the property because this lets them get back the VAT input tax they paid on that spending.
If a commercial property has been sold as a viable business (for example, if it has tenants or if the buyer plans to keep the business going in the property), it will not be liable for VAT as long as both the seller and the purchaser have chosen to tax the property. Please note that to choose to tax, either the buyer or the seller must be registered for UK VAT.
Owning A Property
Rents from UK properties are taxed as income if the owner is a person. This is real for both residential and business properties. This is true for residential and commercial properties, and the rate you pay will be the percentage at the time.
If the property owner is a company not based in the UK, income tax is paid at a flat rate of 20% instead of the scale above. Trustees pay a flat rate of 45% if the owner is a trustee. These rates are paid after maintenance and financing costs are removed.
Annual Tax on Enveloped Dwellings (ATED)
When a business owns a home in the UK worth more than £500,000, they have to pay an annual tax on that home called ATED. You can get a break from ATED, but only where ATED is due.
Selling A Property
Capital Gains Tax (CGT)
Currently, CGT is only taxed when UK residential property is sold, but as of April 6, 2019, it will also be taxed when UK commercial property is sold. This will make the UK’s tax system the same as most others. CGT is a tax based on how much property value went up between when it was bought and sold. This is called “capital gain.”
From April 6, 2019, the following will be taxed under CGT:
- The sale of a business and home properties in the UK;
- The sale of companies with a lot of property and a big stake in it (PRSI Companies);
- The sale of a company whose branch is a PRSI Company; and
- When you add up all of the assets of a group of companies, 75% of them are UK property.
A business is a PRSI company if at least 75% of its value comes from a property in the UK and a non-UK resident owns at least 25% of the company’s equity. HMRC looks at any interest a non-UK citizen keeps in the two years before the sale to determine what that person’s interest is.
This makes it impossible for someone to give up their interest before a sale to avoid CGT liability. The value of a commercial property will be “rebased” on April 6, 2019, so CGT will only be due on gains made after that date. But a UK taxpayer can choose not to rebase their property if the new value is less than what they paid.
Inheritance Tax (IHT)
When a person dies, any UK property they own, whether or not they live in the UK, will be subject to IHT at a rate of 40%. (save where exemptions and reliefs apply). When a non-UK company keeps a person’s property instead of directly by the person, the person’s company’s shares will be subject to IHT at 40% to the extent that their shares are related to UK residential property. When this note was written, IHT did not apply to business property held indirectly through a corporation. However, this could change in the future.
The UK government has said that starting in 2021, all foreign companies will have to list who owns them on a public register that must be kept up-to-date by each foreign company each year. The draft bill that will explain how the register will be used will be tried to introduce in the spring or summer of 2019. Some of the details are still unknown until then.