A guide to UK property taxes for non-residents

Property in the UK has always been seen as an attractive investment and there is a strong home-grown market of property owners and landlords, as well as significant international investment from UK non-residents.

Before purchasing property in the UK for an investment as a non-resident, it is worth seeking advice from a qualified accountant such as dns accountants to ensure you understand if you need to pay UK tax and if there are ways to mitigate tax on the acquisition, income and gains on sale.

Can a non-resident buy UK property?

There aren’t any legal restrictions on non-UK residents buying UK property. This means almost anyone can buy a property in the UK, regardless of nationality.

You do not need a visa to invest in UK property, although you will need a visa if you want to come and live in the property.

Non-residents may be subject to more rigorous identity checks, so you’ll need to make sure you have all the required documentation needed.

UK Property tax for non-residents

Her Majestys Revenue and Customs (HMRC) in the UK levy and collect collecting taxes from individuals and businesses in the UK and this includes property taxes.

Non-UK residents will still be liable for paying some UK tax when buying, owning, renting, developing and selling UK property.

Taxes and charges that non-residents need to be aware of are:

• Stamp Duty Land Tax (SDLT)
• Income tax
• Corporation tax
• Capital gains tax
• Inheritance tax
• Annual Tax on Enveloped Dwellings (ATED)

We look at these in more detail below.

Purchase Tax - Stamp Duty Land Tax (SDLT)

What is Stamp Duty Land Tax?

Individuals must pay Stamp Duty Land Tax (SDLT) if they buy a property or land over a certain price in England and Northern Ireland. There are different rules and taxes for Scotland and Wales. In Scotland you pay Land and Buildings Transaction Tax (LBTT). In Wales you pay Land Transaction Tax.

You pay the tax when you:

• Buy a freehold property
• Buy a new or existing leasehold
• Buy a property through a shared ownership scheme
• are transferred land or property in exchange for payment, for example you take on a mortgage or buy a share in a house

All UK properties, whether residential or commercial, attract SDLT, which is a purchase tax due on acquisition.

Stamp duty land tax thresholds

There is an allowance called a threshold whereby if your property purchase price is less than the threshold, there will be no Stamp Duty to pay.

The thresholds for 2023/24 are:

• £250,000 for residential properties
• £425,000 for first-time buyers buying a residential property worth £625,000 or less National Insurance credits you’ve received
• £150,000 for non-residential land and properties.

Stamp duty land tax residential property rates 2023/24

Below are the normal Stamp Duty rates for 2023/24 if you are purchasing residential property in England and Northern Ireland.

Property price Stamp Duty rate

• £0 - £250,000 0%
• £250,000 - £925,000 5%
• £925,000 - £1,500,000 10%
• Over £1.5 million 12%

Higher SDLT rates for additional properties

An extra 3% is charged if the buyer owns another residential property valued at £40,000 or more anywhere in the world. Special Rules and rates may apply when buying 6 or more residential properties in one transaction or if there are multiple purchases or transfers between the same buyer and seller.

15% rates apply to a corporate purchaser of a residential property, unless the corporate qualifies for relief such as property rental business, property developer / trader, etc., in which case the normal rates apply with an additional 3% surcharge.

SDLT for non-residents

An extra 2% is charged on purchase of residential properties if the buyer is not a UK resident. It is important to note that the surcharge only applies to dwellings purchased in England and Northern Ireland. Currently, it does not apply to Scotland and Wales.

The tests used to establish your residence status for SDLT purposes are different from the Statutory Residence Test used to establish your tax residency status for other taxes.

These include tests if you are:

• buying with someone else
• an individual
• married or in a civil partnership
• a company/business partnership
• a trust.

SDLT liabilities can be significant for non-UK residents buying investment property.

The tax must be paid within 14 days of completion of the purchase.

Find out more about SDLT here.

Income tax

If you are renting UK property, then the rental income is subject to UK income tax. Individuals that are non-residents of the UK and/or who have their “normal place of abode” outside the UK need to register with HMRC as non-resident landlords if they receive income from letting out UK property

The income tax rate will depend on the recipient’s marginal rate. Income tax in the UK ranges from 20% - 45% for individuals and Trusts.

Income tax is due on the net rental income. Net rental income is the gross rent less allowable expenses. There are some expenses that you can claim against your rental income profit that will reduce the tax you need to pay. These are called allowable expenses. Allowable expenses can be things like business rates, renovations, maintenance & repairs, insurance and service charges.

To find out more about what are allowable costs against rental income? Read our blog here.

If the individual is also liable to tax in a foreign country on their UK property income, they will need to claim credit for the UK tax against foreign tax charged on the same income in the country of residence.

The proceeds of sale of a development property will also be subject to income tax rather than Capital Gains Tax(CGT), provided the property was developed or renovated and sold on.

Non-resident companies that own property in the UK must also pay tax on any rental income it receives but this will be Corporation Tax and not income tax (see below).

Are non-residents entitled to the personal allowance?

The personal allowance in the UK is currently £12,570 and remains at this level until 5 April 2028.

As a non-resident you will be entitled to this tax-free allowance if any of the following apply:

• you hold a British passport
• you are a citizen of an EEA country
• you worked for the UK government at any time during that tax year

You may also qualify if it is included as a provision in the double-taxation agreement between the UK and the country you live in. You will generally be required to provide evidence that you are both resident and a national (by providing a copy of your passport).

Trusts

Non-resident trusts are also liable to UK tax on UK property rental income and the Tax Return filing deadline for these trusts is 31 October after the end of the UK tax year (5 April). So, for example, 2023/24 year non-resident Trust Tax Returns need to be submitted to HMRC by 31 October 2024 to meet this deadline and avoid penalties.

UK tax returns

Non-resident landlords should file a UK Tax Return with HMRC at the end of each tax year to report their rental income /taxable profit/loss from their UK properties.

The deadline for submitting a self-assessment tax return online with HMRC is 31 January of the following year.

Non-residents who rent out property in the UK should keep accurate records of all allowable expenses, in order to deduct these from your rental income. Find out more about allowable expenses from rental income here.

What is the non-resident landlord scheme?

The Non-resident Landlord Scheme (NRLS) taxes the UK rental income of people whose ‘ usual place of abode’ is outside the UK.

Letting agents of a non-resident landlord must deduct tax from the landlord’s UK rental income and pay the tax to HMRC. A ‘letting agent’ includes anyone who manages property on behalf of a non-resident landlord.

If the landlord does not have letting agent, you will need to operate the NRLS. If you’re a tenant who pays rent of £100 a week or less, you do not have to use the Scheme unless you’re told to do so by HMRC.

Corporation tax

From 6 April 2020, non-UK resident companies including those who invest in UK property through collective investment vehicles will need to pay Corporation Tax instead of income tax on profits from UK property.

This guidance does not apply to you if you

• have tax deducted under the Non-resident Landlord Scheme and are not required to notify chargeability to Corporation Tax and have not received a notice to deliver a tax return
• file an Income Tax Return that is not a Non-resident Company Income Tax Return (SA700)

If your property is suitable for residential use, you may also have to pay Annual Tax on Enveloped Dwellings (ATED). See below.

Annual Tax on Enveloped Dwellings (‘ATED’)

Annual Tax on Enveloped Dwellings is referred to as ATED. This tax is generally applicable to companies (resident and non-resident in the UK) owning UK residential properties. ATED only applies to those properties with a value greater than £500,000.

Find out more about ATED here.

UK Capital Gains Tax (CGT) for non-residents

Non-residents of the UK are liable to UK capital gains tax on the sale of UK properties and must report relevant disposals within 60 days of sale, whether or not a gain has been made.

Capital Gains Tax (CGT) is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value. A sale, or gift, of a UK property usually triggers CGT on the gain.

The gain is the difference between the cost of acquisition and improvements, and the net sale proceeds, or market value in case of a gift.

You have to pay tax on gains you make on property and land in the UK even if you’re non-resident for tax purposes. You do not pay Capital Gains Tax on other UK assets, for example shares in UK companies, unless you return to the UK within 5 years of leaving.

If the property is used as a main residence, any gain on its sale is usually exempt from CGT.

Inheritance Tax (IHT)

Inheritance tax applies not only to the UK residents but also to non-UK residents. For non-residents, inheritance tax is normally chargeable only on the UK assets/properties (e.g. UK land and buildings).

IHT is payable only when the value of death estate of an individual exceeds £325,000. So, the amount up to £325,000 is free of Inheritance Tax. This is called the Nil Rate Band.

The net value of UK property held by individuals above the Nil Rate Band, even if the individual is not UK resident or domiciled, will be subject to UK IHT at a rate of 40%.

UK residential real estate held by foreign companies may also be subject to UK IHT on the death of the shareholder.

Summary

The UK property market and property ownership are still seen as a good investment for many UK non-residents. Property investment can reap rewards, however, buying, renting, selling or developing UK property requires careful and professional tax planning.

It is important that you pay tax due for UK residential property on time and the correct amount to avoid penalties.

For more advice on UK residential property investment and tax, please contact dns on 03300 886 686, or e-mail us at enquiry@dnsaccountants.co.uk.

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