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UK residential property structures - what are my options?

In the past few years, there has been a massive change in the tax options for residential properties. If you plan to purchase a property for investment or for living in the UK, you must be very careful with tax planning. It is advisable to indulge in tax planning as soon as possible for a smooth transaction.

When you're aware of the UK residential property structure, it will help you understand the value of your investment. You need to get over the previous ideas of the taxes on vehicles and properties as they no longer hold to be valid. Therefore, it is advisable to be familiar with the latest tax structures. If you cannot understand that, consider contacting a professional for advice.

What are the best options?

There are quite a few UK residential property purchase options. However, you must understand the tax structure of each of them. Each of these property purchase structures has its own advantages and disadvantages to offer. What property structure you opt for completely depends on the property and the type of Visa you hold.

Whether buying the property under your name or through a trust, you must ensure you're catering to the latest tax standards.

Based on the latest tax structure regimes, below, we have provided all the necessary information regarding the tax structure. You may go through it to understand how it can be helpful. However, if you still need clarification, a professional consultant or accountant can be helpful. Check out the best options you have in terms of UK residential property structure below:

 

Individual

Company

Trust

On purchase

SDLT at rates up to 12% for UK residents or 14% for non-residents (or up to 15% and 17%, respectively, for additional properties)

SDLT at either 15% or rates up to 15% for UK residents, or at 17% or rates up to 17% for non-residents

SDLT at up to 15% for UK residents or 17% for non-residents

During ownership

No ATED

 

Income tax on rental income at rates between 20% and 45%

ATED may be charged at between £3,700 and £237,400 each year

No ATED

 

Income tax on rental income at rates between 20% and 45%

On sale

Main residence exemption available otherwise capital gains tax at 18% or 28%

Corporation tax at 19%

Main residence exemption available, otherwise capital gains tax at 18% or 28%

On death

Inheritance tax at up to 40%

Inheritance tax at up to 40%

Inheritance tax at up to 40%

UK residential property structures - what are my options?

Current UK tax regime

According to the present or current UK tax regime you will be able to get direct ownership of the residential property. Therefore, there will be no involvement of any trust or corporate structure. Owning a residential property in the UK from a tax point of view is quite convenient. Therefore, you can get the UK residential property under your name far more quickly and at an affordable tax rate than just the company or trust.

Nonetheless, as per the new regime, there are structures where corporate and trust seem to be more accountable. It can offer a wide range of advantages. In the case of limited liability requirements, it will be beneficial to opt for company ownership.

Moreover, apart from the tax reasons, owning a property through trust can be more helpful. It may include estate planning, asset protection and increased confidentiality.

Tax on purchase

If you are buying a property in Northern Ireland or England, you will be liable for paying the stamp duty land tax on the purchase price. On the other hand, the properties in Scotland and Wales will have similar rules for land transaction taxes.

Earlier, SDLT was easy yet high for the purchase of residential properties. Nonetheless, it can be quite complicated due to the coming in of different rates. The rate would, however, depend on the type of structure you're opting for. As a result, the tax rates will significantly impact your property.

Since SDLT is slightly complicated, it can lead to fluctuations in the price. These fluctuations will completely depend on the type of circumstances. If you opt for SDLT, contacting an accountant is advisable to avoid unnecessary risks in filing the taxes wrong.

Tax during ownership

The annual tax on enveloped selling is the tax you must pay every year for the privately held company-owned UK residential property. The property must be valued at over £500,000. The taxes will apply to the UK and non-UK residents. The company should file the ATED tax return on time to get a complete valuation of the property under certain conditions.

If you own the property under your name or through a trust, you will not be liable for paying AETD. Furthermore, there will be no requirement for fillings as well. Individuals may associate it with certain expenditures to reduce the overall tax payable on the rent. However, these rules can be quite complex regarding how the finances can be dedicated. It will have a huge impact on the structure of tax that you're following.

Tax on sale or gift

Non-UK residents are not liable for paying UK capital gains taxes while selling or gifting the property. However, there has been a change in laws. Different types of taxes are applicable to it, depending on the entity. Here is an overview of taxes on gain based on the entity:

Type of entity

Tax rate on gains

Individual

18% or 28%

Trustee

28%

All companies until April 2023

19%

Tax on death

After the death of the owner, the property will be classified under UK inheritance tax. Nonetheless, suppose the individual was not of UK domicile. In that case, they will be flexible to move ahead with the property apart from the inheritance tax, depending on the non-UK company structures. Over the years, there have been significant changes in the rules regarding direct and indirect structures. It is advisable to follow the loan rules to maintain the property.

Conclusion

The current tax regime of the UK discourages corporate and indirect ownership compared to residential ones. The UK residential property has a more straightforward and tax-efficient process that will be helpful in the long run. If you own the property, you will be eligible for lower SDLT rates. It can also be easier to handle in terms of legal ownership. It is advisable to understand the advantages of each structure in terms of residential and corporate usage. Make sure to work out the entire structure with your accountant.

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