The tax impositions on residential properties in the UK have witnessed several changes in recent years. When buying a residential property in the UK, considering tax treatment is one of the first things one should do. The earlier you consider and explore your options, the better property you will get. In the past, certain tax vehicles and structures were highly popular. However, they may no longer be suitable today.
The complexities of the tax treatment that were relatively simpler in the past have increased, given the recent changes and developments. Thus, navigating the residential property tax treatment in the UK is not easy, and you might need a professional property tax advisor like the ones at IBISS & CO.
Nevertheless, before you move on to tax consideration, you need to learn and understand the different residential property structures in the UK and the tax implications that come with it.
The high quality of life, stable economy and excellent educational opportunities are the main drivers of the residential property market in the UK. They are the reason for high demand, which results in high prices and intense competition in the real estate landscape. Therefore, if you are planning to buy a residential property in the UK, you should know that you will need to get ahead of your competition by performing adequate research, and that includes choosing the right property structure for you.
Buying a residential property is one of the most significant purchases you will make. Having the right information and sufficient time helps you make a smart choice. From shortlisting the type of residential structure you want to buy to applying for a mortgage and figuring out tax treatment, there is a lot you need to do when buying a residential property. Thus, having a little knowledge and time can work in your favour.
However, most buyers are clueless and dive into the market without prior research. Therefore, if you want to learn more about buying a residential property in the UK, keep reading.
This post will discuss the different residential structure options you can choose from while buying a residential property in the UK and highlight the tax implications that come with it.
Buying a Residential Property In The UK: 3 Ideal Options
There are several options you can choose from when it comes to structuring the purchase of your residential property in the UK. While every method has its advantages and disadvantages, the choice ultimately depends on the individuals and their circumstances. However, there are only three primary ways in which a person can own a property in the UK: in your name, through a company or through a trust.
Option # 1: Individual
On Purchase: SDLT at rates of up to 12 per cent for the residents of the UK or 14 per cent for UK non-residents (or up to 15 per cent and 17 per cent, correspondingly, for any additional properties)
During Ownership: No ATED is required. You have to pay Income tax on rental income at a rate between 20 per cent and 45 per cent
On Sale: Exemption available on the main residence. Otherwise, capital gains tax at 18 per cent or 28 per cent
On Death: Inheritance tax at up to 40 per cent
Option # 2: Company
On Purchase: SDLT at either a rate of 15 per cent or rates up to 15 per cent for residents of the UK or 17 per cent or rates up to 17 per cent for UK non-residents
During Ownership: ATED may be charged between £3,700 and £237,400 every year
On Sale: Corporation tax at 19 per cent
On Death: Inheritance tax at up to 40 per cent
Option # 3: Trust
On Purchase: SDLT at up to 15 per cent for residents of the UK or up to 17 per cent for UK non-residents
During Ownership: No ATED is required. You have to pay Income tax on rental income at a rate between 20 per cent and 45 per cent
On Sale: Exemption available on the main residence. Otherwise, capital gains tax at 18 per cent or 28 per cent
On Death: Inheritance tax at up to 40 per cent
All of these options will be explored in more detail below.
Tax on Purchase
When you purchase a residential property anywhere in England or Northern Ireland, you have to pay stamp duty land tax (SDLT) on the price of your purchase. The same goes for residential properties in Scotland and Wales. In the past, SDLT was relatively straightforward for most of the residential properties in the UK.
However, today, the system has become highly complex mainly because of the several possible set of rates that might apply. The rates may vary depending on the structure you have used and your circumstances. Thus, it can significantly impact the cost of your purchase.
For example, if you bought a residential property in the UK between 2003 and 2005 for around £1 million, the SDLT was straightforward at that time, and the type of structure and your circumstances barely made a difference. However, if you buy the same residential property now, getting the wrong SDLT because you failed to secure tax-saving opportunities and potential reliefs could cost you as much as £130,500, which is more than 10 per cent of the purchase price.
The main SDLT rates that apply to a residential property purchase from October 2021 onwards for UK residents are as follows:
| Purchase Price | SDLT Rates Individuals | SDLT Rates Companies | SDLT Rates for Trusts | ||
| Standard | Additional | Business Use | Personal Use | ||
| £0 – £125,000 | 0% | 3% | 15% | 3% | 3% |
| £125,000 – £250,000 | 2% | 5% | 15% | 5% | 5% |
| £125,000 – £250,000 | 2% | 5% | 15% | 5% | 5% |
| £125,000 – £250,000 | 2% | 5% | 15% | 5% | 5% |
| £125,000 – £250,000 | 2% | 5% | 15% | 5% | 5% |
The main SDLT rates that apply to a residential property purchase from October 2021 onwards for UK non-residents are as follows:
| Purchase Price | SDLT Rates Individuals | SDLT Rates Companies | SDLT Rates for Trusts | ||
| Standard | Additional | Business Use | Personal Use | ||
| £0 – £125,000 | 2% | 5% | 17% | 5% | 2% |
| £125,000 – £250,000 | 4% | 7% | 17% | 7% | 7% |
| £250,000 – £925,000 | 7% | 10% | 17% | 10% | 10% |
| £925,000 – £1,500,000 | 12% | 15% | 17% | 15% | 15% |
| £1,500,000+ | 14% | 17% | 17% | 17% | 17% |
As the rates suggest, it is best to buy a residential property in your name. However, as mentioned above, SDLT is complex, and the charges may vary depending on your circumstances. Thus, it is best to seek the advice of an expert property tax advisor to reduce costs as much as possible in a legitimate way and protect from the risks of getting the wrong SDLT.
Tax During Ownership
You have to pay the annual tax on enveloped dwellings (ATED) every year if you are a privately held company that owns a residential property in the UK valued at over £500,000. This tax is applicable regardless of whether you are a UK or non-UK resident.
Here is a table to help you learn the ATED amounts.
| Property value | Annual charge |
| Over £500,000 up to £1 million | £3,700 |
| Over £1 million up to £2 million | £7,500 |
| Over £2 million up to £5 million | £25,300 |
| Over £5 million up to £10 million | £59,100 |
| Over £10 million up to £20 million | £118,600 |
| Over £20 million | £237,400 |
You won’t have to pay ATED if your company runs a business concerning the property for an entire year, like commercial lettings to third parties and property development. However, you will need to file annual ATED to get valuations at specific intervals.
The best way to make sure you don’t have to pay ATED is to hold the property outside the company. For instance, if it is in your or a trust’s name, you won’t have to pay and file ATED.
On the other hand, if you plan to rent the property, you will be taxed on the income you earn from the monthly rent. Take a look at the table below:
| Amount of income | Tax rate on rental income |
| Up to £12,570 | 0% |
| £12,571 to £50,270 | 20% |
| £50,271 to £150,000 | 40% |
| Over £150,000 | 45% |
If the property is owned by the company, UK and non-UK resident companies will have to pay corporation tax on their UK rental income at a rate of 19 per cent.
Tax on Sale or Gift
In the past, non-UK residents were not subject to UK capital gains tax when gifting or selling a residential property in the UK. However, after a change in the law in 2015, anyone who gifts or sells residential property in the UK is subject to capital gains tax on any increase in property value from the time of purchase, regardless of whether they are a UK resident or non-resident.
The tax rates for gains made from residential properties in the UK are as follows:
| Type of entity | Tax rate on gains |
| Individual | 18% or 28% (subject to the total UK income and gains in the year of sale/gift) |
| Trustee | 28% |
| All companies until April 2023 | 19% |
If you hold the property in your name or a trust, the first part of the capital gain will be exempt from tax, £12,300 of the total gain for individuals and £6,150 of the total gain for most trusts. Likewise, you won’t have to pay tax for the number of days or time you lived in the property and used it as your main residence. Non-residents can also benefit from this, but they need to live in the property for at least ninety days of the tax year.
This will also work if the property is held in the name of the trust but not for companies.
Let the Expert Property Tax Advisors at IBISS & CO. Help!
Now that you know everything about buying a residential property in the UK, it is time to connect with expert property tax advisors. If you are having a hard time searching for the right property structure and managing the tax implications of buying a new house, the experts at our tax consultancy firm can help. It can be a little challenging to find a reliable property tax advisor, but we are the most trustworthy choice.
IBISS & CO. is your best bet for all types of property tax advice. Whether you need help while buying a house or need to figure out your tax implications, you can connect with our property tax specialists in London for expert guidance on all tax-related matters, including property tax advice. We have some of the best account anting and tax consultants in London and Walsall as part of our team who can guide you in all types of tax issues as you buy your residential property in the UK.
In addition to property tax advice, we also offer help regarding Capital Gains Tax allowances and reliefs, HMRC tax investigation, or other tax areas. Our tax advisors are there to assist you every step of the way. Our firm is well-versed in all areas of property and tax planning, helping you find new ways to rightfully reduce the amount of tax you have to pay as you become a proud homeowner.
Furthermore, we have more than two decades of industry experience in accounting services and tax planning, making us one of the most dependable tax consultancy firms out there. Our loyal client testimonials and referrals are a reflection of our promises to serve and help. Whatever your tax needs are, you can get a free quote right here before you get started.
Get in touch with our property tax specialists today for consultation and property tax advice. Alternatively, you can visit our website to learn more about all of our tax-related services.
