The historical ability for non-residents to avoid UK tax on property sales and potentially benefit from reduced stamp duty has undergone significant changes. Recent times have seen the erosion of many benefits for non-resident investors, with an expanded scope of taxation on their gains. This article, by Richard Turner explores the complexities of navigating Capital Gains, Stamp Duty Land Tax (SDLT), and Annual Tax on Enveloped Dwellings (ATED) for non-residents buying and selling UK Property – Read on for a comprehensive understanding of the transformed tax landscape.
The Changing Landscape:
Historically it was possible for non-resident individuals and companies to avoid UK tax on the sale of UK property and potentially to pay a reduced rate of stamp duty, depending on how the purchase was structured.
However, in recent times many of the benefits for non-resident investors have been eroded and the ways in which real estate investors can be taxed on their gains has been expanded.
In 2015 The sale of UK residential property by non-residents became liable to UK tax. Following this in 2019 the tax net was widened to include commercial property. Finally in 2021, the rate of Stamp Duty Land Tax, payable on the acquisition of UK property was enhanced to include an additional 2% surcharge for non-resident purchasers.
Capital Gains Tax on UK Property
Where non-residents sell property that was held prior to the introduction of these rules, the taxpayer may undertake different calculations to determine the amount of tax due. Typically, the most beneficial of these calculations will involve rebasing the property to its value on 5 April 2015, for residential property, or 5 April 2019 for commercial property.
Furthermore, for non-resident individuals selling residential property there is a requirement to notify, report the gain and pay the tax within 60 days of the sale. This can create a very tight deadline for the unprepared, especially if the circumstances of the acquisition were complicated or there is some uncertainty around the valuation.
In addition to the direct sale of UK property by non-residents, Shareholders that hold shares in property rich companies may also have to pay tax on the sale of their shares.
An indirect disposal occurs when a non-resident person sells or disposes of their interest in an asset that derives 75% or more of its gross value from UK land. The rules only apply where the taxpayer holds over 25% interest in that asset for the sale or disposal to be an indirect disposal.
For non-resident companies, gains on the sale of property are added to any other UK profits they have and taxed at their marginal corporation tax rate.
Stamp Duty Land Tax (SDLT)
In addition to the usual rates of SDLT, an extra 2% surcharge applies to purchase of residential property, purchase by non-resident individuals, non-resident companies and close companies that are controlled by non-resident shareholders.
From 23 September 2022 to 31 March 2025
|Band: market price £
|Basic SDLT rate
|Higher SDLT rate: additional property owner/company*
Basic SDLT rate
Higher SDLT rate: additional property owner/company*
|Up to 250,000
|250,001 – 925,000
|925,001 – 1,500,000
There can be a nasty trap for some UK companies. Because control is determined by aggregating together the shareholdings of associates, such as a relative. For example, If 2 brothers and their father are equal shareholders in the same company, if Dad were to move abroad the company would be considered ‘non-resident’, because his sons’ shareholding would be aggregated with his own, for testing whether the company was subject to control by a non-resident.
Annual Tax on Enveloped Dwellings (ATED)
The ATED regime applies to companies and other non-natural persons (e.g., partnerships with corporate members or other collective investment vehicles), that own dwellings valued at £500,000 or more. For this purpose, the valuation is taken at the earlier of the date the property was acquired, or at the 5-year revaluation date fixed by HMRC. The last fixed revaluation date was 1 April 2022, so any properties already owned at this date must be revalued.
Unless one of a number of exemptions or reliefs apply, the regime imposes an annual tax charge on the property owner, based on the value of each individual property. The property values at which the charges apply has changed frequently over recent years and starts at £4,150 for a property worth under £1m going up to £269,450 for a property worth over £20m.
The exemptions and reliefs apply to properties acquired for commercial reasons, such as letting and development among others.
Conclusion & Next Steps
Investment into the UK property market remains attractive despite the increase in tax and compliance obligations.
Whether you are undertaking new acquisitions or have existing property interests in the UK it is important that you understand how these changes impact you. If you need any assistance in this regard, please contact Richard Turner or get in touch with us via the contact form below: