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Property tax in England is regulated by special legislation. To define your tax responsibilities, this legislation takes into consideration important factors of property system as well as cost and number of properties you may have.
This article will attempt to briefly provide with information those interested in proceeding to a relevant investment of buying property.
Stamp Duty Land Tax (SDLT)
This tax is payable during the purchase of the property and the rate depends:
on the price of property
on the type of the property (residential or non-residential)
on the type of owner (company or individual)
on the residency of owner
if it's first property
SDLT Rates for Individuals (1st residential property)
You can ask for a tax deduction and not be taxed for the first £425,000 and 5% for an amount ranging from £425,001 to £625,000.
You are entitled to this if:
This is your first property (in any country) and
The purchase takes place on or after 22 November 2017
EXAMPLE
You are a first-time buyer and purchase a property for £500,000. The SDLT you owe will be calculated as:
0% on the first £425,000 = £0
5% on the remaining £75,000 = £3,750
total SDLT = £3,750
If the price exceeds GBP 625,000, this right does not apply; instead, the rules for the purchase of a second or other apply.
SDLT Rates for Individuals (2nd residential property)
When a physical entity already has property anywhere in the world and buys another one, the relevant tax is increased by 3%. However, there are occasions when this extra tax can be refunded.
Property or lease premium or transfer value | SDLT rate |
|---|---|
Up to £250,000 | 0% |
The next £675,000 (the portion from £250,001 to £925,000) | 5% |
The next £575,000 (the portion from £925,001 to £1.5 million) | 10% |
The remaining amount (the portion above £1.5 million) 12% | 12% |
EXAMPLE
In October 2022 you buy a 2 house for £295,000. The SDLT you owe will be calculated as follows:
0% on the first £250,000 = £0
5% on the final £45,000 = £2,250
total SDLT = £2,250
If the price is over £625,000, you cannot claim the relief.
SDLT Rates for Individuals For non-residential property
£0 £150,001 £250,001 | £150,000 £250,000 > £250,000 | 0% 2% 5% |
EXAMPLE
If you buy a house for £275,000 then the SDLT you will have to pay is calculated as follows:
- 0% for the first £150,000 = £0 - 2% for the next £150,000 = £2,000 - 5% for the remaining £25,000 = £1,250 - total SDLT = £3,250
SDLT Rates for companies for properties £500,000+
Stamp Duty Land Tax (SDLT) is charged at 15% on residential properties costing more than £500,000 purchased by certain corporate bodies or ‘non-natural persons’. This charge applies regardless of the property's intended use, whether residential or commercial.
Specifically applies to the following:
companies
partnerships where one or more of the partners is a company
collective investment schemes
The 15% rate does not apply to residential property bought by a company that is acting as a trustee of a settlement.
Relief from the 15% higher rate charge available if the property:
used in a property rental business
bought by a property developer or trader
used in a trade involving making the property available to the public
bought by a financial institution in the course of lending
occupied by employees of the purchaser
bought by a qualifying housing co-operative
SDLT Rates for companies for properties less than £500,000 if
Value of the Property | SDLT Rate |
|---|---|
£0-£40,000 | 0% |
£0 to £250,000 | 3% |
£250,001 to £925,000 | 8% |
£925,001 to £1.5m | 13% |
£1.5m+ | 15% |
The table above applies when the company is exempt due to one specific reason, which is running a property rental business. If the company is not exempt and the property cost exceeds £500,000, a rate of 15% will be applied.
HMRC offers an excellent tool for determining the applicable tax in your situation. Click HERE.
Inheritance Tax (IHT)
For non UK residents, this tax is paid either after the death of the owner or during the process of donation of the property. If an offshore company holds property, since 2017 this is considered as property of a UK company in terms of taxation and therefore, if the shareholder passes away, it is subject to this category.
Inheritance Tax is 40% above the tax free limit (£325,000). In order to reduce this tax, some chose to pass their property to their children. This route however may have hidden risks and other taxes and it is therefore necessary to consult a specialist in the property field.
Non-Resident Capital Gain Tax (NRCGT)
If you are not a UK resident, when selling property and gaining profit, you have to pay the relevant tax within 30 days (normally 28% or in some cases 18%). Capital Gain is the difference of the purchase amount minus the selling amount (including any accepted costs, such as sale or legal costs).
This applies to physical entities while it varies for legal entities, but this will not be discussed in this article.
Annual Tax on Enveloped Dwellings (ATED)
ATED is the annual tax on property of value over £500,000 which belong to non-physical entities, but for example, to companies. ATED ranges from £3,650 to £232,350 per year depending on the value of the property, and the cost increases every year depending on inflation.
The relevant ATED form must be submitted every year which, in some cases, can also be accompanied by an application for tax reduction.
Income Tax
Income from rental property is taxable. This means you generally need to submit a Self Assessment tax return each year, regardless of the property's value, including all your income and the tax rate depends on the total income. The rates range from 0 to 45%.
Nevertheless, the initial £1,000 of your property profit is exempt from tax.
Succession planning
If there is no will, succession is based on the relevant UK legislation (UK intestacy law) and on many occasions the outcome does not agree with the wishes of the successors and therefore, it is of great importance to consult specialist in the estate field and clarify such issues as soon as possible.
© 2020 UPECO LTD
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ATTENTION!
This article intends to give only a general informative picture and should not, in any case, be taken as a rule. It is strongly recommended to seek a full and professional guidance specifically for your circumstances before making any decisions.
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