Owning residential property in the UK isn’t as simple as it seems. Residential property is subject to various types of taxes, depending on the nature of the property itself. Over the years, there have been quite a few changes in the taxation of residential properties as well.

Here’s what you need to know regarding property taxes in the UK before you invest in a residential property.

Annual Tax on Enveloped Dwellings (ATED)

The ATED is a tax for properties over £500,000. This is an annual tax and requires the property owners to be non-natural persons, for instance, companies.

Typically, the tax charges for ATED are between £3,650 and £232,350. The amount depends on the property value and may increase annually with inflation. ATED returns need to be submitted every year.

Stamp Duty Land Tax

The SDLT typically begins from 2% on residential properties worth over £125,000. Property owners need to pay this when they purchase a property, and the actual payable amount varies based on the nature of the property.

If a purchaser already owns a residential property in the UK, there will be a surcharge. This essentially means that you’ll have to pay 3% additional SDLT. However, there are certain exemptions to this.

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UK Inheritance Tax

As of 2017, all UK residential property is subject to inheritance tax. Previously, many non-UK domiciled individuals owned residential property to avoid the inheritance tax. This is no longer the case. Now, all overseas parties holding a share in UK residential property have to pay the inheritance tax.

The tax is charged at 40% beyond the usual Nil Rate Band. While many people try to evade taxes by transferring their properties to minors, this has significant tax disadvantages of its own.

Personal Ownership

While property that’s jointly owned, i.e., owned by multiple individuals, isn’t subjected to the ATED regime, the UK Land Registry will show the names of the property owners. The same applies to a property owned by a single individual. Since 2017, personal property has been subjected to the UK inheritance tax.

IBISS & CO Limited is a chartered accountant firm in the UK that offers a range of taxation and accountancy services to individuals and businesses in Walsall. Whether you need help with property taxes and capital gains tax or require a personal tax advisor, we’re just a call away!

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