Tax Planning and Set Up

Tax Planning Guide: UK Residential Property for Overseas Clients

As an overseas investor, it's important to understand the tax implications involved in your investment. Getting this right at the start of your investment is critical to make sure you have a most efficient structure that mimimises your tax liabilities and increases your Return on Investment.

The following information in partnership with Birketts Lawyers, will provide you with information to help you make informed decisions and optimize your tax position.

What Taxes are Payable on a Purchase?

Stamp Duty Land Tax (SDLT) is the primary tax applied to the purchase of UK property. The amount of SDLT due is determined by the purchase price and follows a tiered structure:

  • First £250k: SDLT rate 0%

  • Portion from £250k to £925k: SDLT rate 5%

  • Portion from £925k to £1.5m: SDLT rate 10%

  • Portion above £1.5m: SDLT rate 12%

Please note that SDLT rates increase by 3% if the buyer already owns another residential property worldwide and by an additional 2% if the buyer is a non-UK resident.

Other Taxes to be Aware of:

  • Income Tax: If you plan to rent out the property, any income generated will be subject to UK Income Tax.

  • Capital Gains Tax (CGT): When selling the property, CGT may apply if the property has increased in value since purchase. 

  • Inheritance Tax (IHT): Ownership of UK assets exposes you to IHT upon death. IHT can be managed through strategies such as commercial borrowing, life insurance, and well-drafted English Wills.

Purchasing through a Trust or Company:

Companies: Purchasing property through a UK Limited Company is the most common method used by overseas investors as it is more tax efficient particularly if you are going to mortgage the property. Registering the company on the Government's "Register of Overseas Entities" is mandatory for non-resident companies owning UK real estate.

Trusts: The type of trust used may affect the amount of SDLT payable. IHT rules for overseas individuals are complex, and proper tax advice is crucial when structuring a purchase through a trust.

Non-Tax Issues:

In addition to tax considerations, there are other important factors to address:

  • Establishing an English Will to determine property inheritance upon death.

  • Choosing between "joint tenants" or "tenants in common" ownership when sharing the property.

  • Planning the funding for the purchase and ongoing property expenses, especially for "remittance basis" tax payers.

Next Steps:

Purchasing UK property involves numerous considerations. Our International Private Client Advisory team, in partnership with Birketts Lawyers, specialises in guiding clients through these complexities and finding the optimal ownership structure for their needs. Contact us today to embark on a successful and tax-efficient property investment journey.

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