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Owning Residential Property in U.K.

This article is intended for the information of persons who are neither domiciled in the United Kingdom nor resident there for tax purposes and who intend to acquire property for personal occupation.

United Kingdom, and particularly London, property has for many years been a popular mode of investment for foreign investors and indeed, at one recent time, it was estimated that some 60% of London residential property was owned by offshore companies. London real estate has also performed well in investment terms.

There are no restrictions on the ownership of real estate in the United Kingdom by non-residents and, other than the matters which influence the choice of the property itself, perhaps the most important factor to be taken into account is the impact of the various forms of taxation which will be encountered. These can be divided into direct and indirect taxes:
 

Indirect taxes

Stamp duty

Stamp duty is levied on the purchase price at rates, which range from 1% for a property costing £125,000, to 4% where the purchase price exceeds £500,000.

Council tax

This tax is levied by the Local Authority. The rate is set annually and depends on the locality, the size of the property and its value.

Direct taxes

The United Kingdom levies three main forms of direct taxation:

• Income tax - This tax will not apply to an owner occupier
• Capital gains tax - Non –residents are exempt from capital gains tax in respect of property held only as an investment
• Inheritance tax - For which any investor holding assets in the United Kingdom is potentially liable. Fortunately it is avoided easily by the purchaser who has a foreign domicile

Inheritance tax planning

Where the value of chargeable assets passing on death exceeds a threshold, the excess is taxed at 40%. The threshold is £300,000 for 2007/8 and will increase to £350,000 by 2010. Where the investor had a foreign domicile, only U.K. property is taken into account in the calculation and it may be necessary to take into account the value of gifts of U.K. assets in the seven years preceding death.

If the property is purchased in the name of the individual there can be no doubt that its value will be assessed for inheritance tax purposes on his death. If however it is purchased in the name of an offshore company, the investor does not own an asset in the U.K, but the shares in a foreign company, which, in his circumstances are not chargeable with inheritance tax. If the company is incorporated in a tax-free jurisdiction, such as the British Virgin Islands, the final result will be that the property passes tax free to the heirs.
 

If you are interested in Buying a Property in the UK please please call +353 1 431 9663 or Click Here to contact us.