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What taxes are paid by property owners in the UK?

PUBLISHED: 21 September 2020
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Each year, the United Kingdom is in the top 5 investment destinations of the world thanks to a strong national economy, unique geographic location at the crossroads of trade routes and excellent conditions for small and mid-size businesses. Therefore, it is not surprising that entrepreneurs from around the world choose Great Britain as their second home.

When planning your relocation to the UK, at some point you will be thinking about buying land, a house or a flat. Investing in real estate is a good way to save your capital from inflation. Besides, a flat, a house or an office in the UK can be rented out and get stable income. But before you buy real estate in Great Britain, check how much money it will take to maintain it and how much taxes you must pay to the state.

Is there property tax in the UK?

It is a common knowledge that British owners do not pay property tax. But wait, it is too early to celebrate as there may be other taxes to pay. And though they have different names, they are still related to property.

How much tax do I have to pay on my property in the UK?

The amount of tax you will need to pay on your UK property will depend on a lot of factors that can be summarised in 5 questions.

  1. How much does your property cost?
  2. Where is your property located?
  3. What do you plan to do with your property?
  4. What type of ownership do you buy? In simple terms, who owns the land where your house stands?
  5. Do you have another property?

Let us break down all possible taxes and charges that might apply to you when you buy land, a house, a flat or commercial property in the UK.

Stamp Duty Land Tax

This is charged by the state at the moment of the purchase of real estate in the UK. Corporate buyers will have to pay a fixed rate of 15%.

If you buy a property as a private owner, stamp duty rate will vary from 0 to 17% based on the purchase value, your immigration status and whether you already have another property. Last UK government have increased stamp duty rate for foreign buyers by 2%.

Какие налоги платят владельцы недвижимости в Великобритании

What are stamp duty rates?

Use the table that our team has prepared to calculate how much stamp duty you must pay.

Purchase value Basic rate Rates for additional properties
UK nationals Foreign buyers* UK nationals Foreign buyers*
Up to £125,000 0% 2% 3% 5%
£125,001 – £250,000 2% 4% 5% 7%
£250,001 – £925,000 5% 7% 8% 10%
£925,001 – £1,500,000 10% 12% 13% 15%
Over £1,500,001 12% 14% 15% 17%
* – From 1 April 2021

If it is your first home, there is no stamp duty on the property that costs less than £300,000. If the value is more than that, but not more than half a million pounds, first £300,000 are not taxed and the remaining amount will be taxed at only 5%. However, if the value is over £500,000, you shall use the additional property rates.

There are other ways to pay less or no SDLT. If you buy a freehold property, i.e. with the land it stands on and adjacent territory, some land may be exempt from tax. Talk to a property expert to check your eligibility for any reliefs or exemptions.

Ground Rent

If the land your house stands on belongs to someone else, this type of ownership is called leasehold. It would normally trigger an additional charge, ground rent, that in average amounts to £50-100 a year for residential properties.

These things must be taken into consideration as it is possible to buy freehold properties in the UK when both the land and a house will belong to you.

Council Tax

Another tax related to properties in Great Britain that must be paid by present occupiers of a flat or a house. If a property is rented, it is tenants that must pay council tax. As the name suggests, the money goes to a local council and is partially spent on maintaining the area surrounding your house. Council tax rates differ by location and price range for similar properties. If you buy in the Northern Ireland, rates will be very individual.

All property owners or tenants that presently live there must pay council tax, except for those who vacated the property for the time being for refurbishment. Students are provided discounts.

Есть ли налог на недвижимость в Великобритании

Annual Tax on Enveloped Dwellings (ATED)

ATED is a property tax that is paid annually by companies that own a UK residential property of over £500,000. It is normally paid at the time of submitting a tax return at the end of the financial year, i.e. in April.

The amount of tax to be paid to the Treasury depends on the market value of a property at the time of purchase or, if the property is owned for a long time, the revaluation every 5 years after purchase.

Who is exempt from ATED?

A company, partnership or investment fund are exempt from paying this taх in the following cases:

  • If a residential property is rented out to third parties not connected to the owner.
  • If it is open to the public for at least 28 days a year.
  • If it belongs to a commercial company or agricultural enterprise and is used as a corporate accommodation for employees.

So far, we have looked at taxes that are directly related to the purchase, ownership and use of properties in the UK. However, there are other taxes that are not associated with real estate, but you must be aware of them if you decide to sell or rent your UK property or if you inherit it.

Rental income tax

Irrespective of whether you are UK tax resident or not, you must pay tax on any income received on the UK territory. But if you are a foreign national that bought a UK property to let and you do not plan to move to the UK in the nearest future, you can use a double taxation treaty to avoid paying tax twice.

It works like that:

  1. You declare all your income in a tax return, including foreign income, to calculate how much tax you must pay.
  2. You have already paid UK tax on income received in the UK and you can prove it.
  3. In your home country, you calculate income tax on rental income, deduct the amount of tax already paid in the UK and pay the remaining amount.

Capital Gains Tax

In a country with a stable economy, property prices would not be going down or stagnating. The UK is not an exception to this rule; you can expect to earn on selling your UK house or flat after a couple of years of ownership.

The UK government, however, would want a share of your earnings through capital gains tax. There are two rates based on the amount of capital gain.

  • 18%, if the difference between the purchase price and sale price is less than £31,865.
  • 28%, if the difference between the purchase price and sale price is more than £31,865.

If you have already become tax resident, you can pay Capital Gains Tax after the end of financial year and after you submit a self-assessment tax return. All the rest must pay the tax not later than 30 days after purchase.

There are tax reliefs and exemption that allow to reduce the amount of tax or avoid paying the CGT altogether. For example, if you sell a property of limited square footage where most of the time you have lived yourself. Or if you gift your property to your spouse.

Налог на наследство

Inheritance tax

You will become subject to this tax if you inherit a whole or part of an estate of the deceased. Inheritance tax rate in the UK is 40% unless you are a spouse of the person who died. If a grandfather gave you a flat for your graduation, but he died less than 7 years after that, this gift will be considered inheritance and you will have to pay inheritance tax at a rate of 8% to 40%.

Tax-free allowance for heirs other than spouses is first £325,000 of the estate. From 2017, direct heirs are liable to a tax relief for the inherited property where they have been living or used to live.

Even with all allowances and reliefs, inheritance tax rate in the UK is so extortionately high that we recommend thinking beforehand what you can do to prepare and restructure your assets, even if you are young.

Conclusion

Buying a property in the United Kingdom has a lot of benefits. However, before starting any process, double check all aspects of the matter and costs associated with owning a house, a flat or an office in the UK.

London-based company Imperial & Legal is dealing with property matters on a daily basis including purchase, management and sale of real estate in Great Britain and other countries worldwide. Our experts will help you minimise all kinds of taxes and charges related to the acquisition and maintenance of your UK property, consult you on all related matters and find  a customised solution you need.

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