UK Property Tax for Non-Residents

Many people from outside the UK find buying property for an investment. Non-residents can freely buy both residential and commercial properties without restrictions based on where they live or their nationality. However, owning UK property means you must understand and pay certain taxes.

The UK government, through HM Revenue and Customs, charges taxes. Knowing these taxes helps non-residents avoid penalties. If you plan on buying property in the UK as a non-resident, this blog is best to get professional tax advice to manage your investment properly and legally.

Can a non-resident buy UK property?

Yes, A non-resident is allowed to buy property in the UK, as there are no legal limitations related to citizenship or residency for purchasing either residential or commercial real estate.

You do not need a visa to invest in UK property, although you will need a visa if you want to come and live in the property. Non-residents may be subject to more rigorous identity checks, so you’ll need to make sure you have all the required documentation.

UK Property Tax for Non-Residents

HM Revenue and Customs (HMRC) in the UK levies and collects taxes from individuals and businesses in the UK, including property tax in the UK for foreigners. Non-UK residents will still be liable for paying some UK property tax when buying, owning, renting, developing, and selling UK property.

Taxes and charges that non-residents need to be aware of include:

• Stamp Duty Land Tax (SDLT)
• Income tax
• Corporation tax
• Capital Gains Tax
• Inheritance tax
• Annual Tax on Enveloped Dwellings (ATED)

We look at these in more detail below.

Stamp Duty Land Tax (SDLT)

Stamp Duty Land Tax (SDLT) is a tax imposed by the UK government on the purchase of land and properties in England and Northern Ireland. You are required to pay SDLT when you buy a freehold property, a leasehold property, or even when you acquire land or property rights in exchange for payment, such as taking on a mortgage or buying a share in a house.

If you are buying a property in the UK as a non-resident, it is important to be aware that all UK properties, whether residential or commercial, attract SDLT, which is a purchase tax due on acquisition.

Stamp Duty Land Tax Thresholds

There is an allowance called a threshold, whereby if your property purchase price is less than the threshold, there will be no Stamp Duty to pay. The thresholds are:

• £125,000 for residential properties.
• £300,000 for first-time buyers buying a residential property worth £500,000 or less.
• £150,000 for non-residential land and properties.

Stamp Duty Land Tax Residential Property Rates

Below are the normal Stamp Duty rates if you are purchasing residential property:

SDLT for Non-Residents

From 1 April 2021, An extra 2% is charged on purchase of residential properties if the buyer is not a UK resident. It’s important to note that the surcharge only applies to dwellings purchased in England and Northern Ireland. Currently, it does not apply to Scotland and Wales.

The tests used to establish your residence status for SDLT purposes are different from the Statutory Residence Test used to establish your tax residency status for other taxes. SDLT liabilities can be significant for non-UK residents buying property in UK non resident or investment property.

Income Tax

If you are a non-resident of the UK, you are generally liable to pay UK income tax only on income sourced within the UK. This means that your foreign income usually falls outside the scope of UK taxation, but any income generated from UK-based activities or assets will be subject to UK tax rules.

Types of UK income subject to income tax for non-residents include:

• Rental income from letting UK property
• Income from savings held in UK bank accounts
• Dividends from shares in UK companies
• Profits from conducting a business or part of a business in the UK
• UK pension income
• Earnings from work duties performed in the UK, even if paid by a foreign employer or from overseas sources.

Non-resident landlords receiving rental income from UK property must register with HM Revenue & Customs (HMRC) as part of the Non-Resident Landlord Scheme to correctly report and pay tax.

The income tax rates for non-residents are the same as for UK residents, ranging between 20% and 45%, depending on the total taxable income and marginal rate.

Corporation Tax

From 6 April 2020, non-UK resident companies including those who invest in UK property through collective investment vehicles will need to pay Corporation Tax instead of income tax on profits from UK property.

Annual Tax on Enveloped Dwellings

ATED is generally applicable to companies (resident and non-resident) owning UK residential properties valued over £500,000.

Capital Gains Tax (CGT) for Non-Residents

Non-residents of the UK are liable to UK Capital Gains Tax on the sale of UK properties and must report relevant disposals within 60 days of sale, whether or not a gain has been made.

Inheritance Tax (IHT)

Inheritance tax applies not only to UK residents but also to property tax in UK for foreigners. For non-residents, inheritance tax is normally chargeable only on UK assets/properties such as UK land and buildings.

Conclusion

The UK property market and property ownership are still seen as a good investment for many UK non-residents. Buying property in UK non resident can gain rewards, however, buying, renting, selling, or developing UK property requires careful professional tax planning around UK property tax.

It is important that you pay the correct amount of tax on UK residential property on time to avoid penalties.

For more advice on UK residential property investment and tax, please contact dns on 03330605328, or e-mail us at [email protected].

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About the author

Owais Bombaywala
Working closely with individuals and businesses to help grow their business requires a significant amount of experience and industry knowledge. Owais is BA (Hons) Accounting and Finance and Member of ACCA. Besides being a compliance champion, he specialises in Property tax planning. With over 7 years of experience in Accountancy and Tax world, our clients count on us to give them timely and up to date advise to help them make the right move. Owais works closely with some of the DNS’s most valued clients to give them the confidence they need to focus on their business. He is known for his calm nature and proactive approach. At DNS, we proud to be a modern and client centric firm. Our advise doesn’t just look at what’s best for your business moreover our aim is to help you achieve your personal goals. Away from work, he resolve family disputes and provide care and support to elderly people. He is a founding member of Human welfare organisation Hounslow.