Real Estate Investor Magazine South Africa Real Estate Investor Magazine - Dec/Jan 2018 | Page 24

FEATURE
Acquiring and Owning UK Property
Tax Perspective for Non-Residents
BY GRAHAM BUSCH AND SONAL SHAH
T
his article considers the tax consequences of ownership by
the following:
•
•
•
•
•
A single individual
A married couple or civil partnership
A UK limited liability partnership (LLP)
A company, split into UK and offshore
An offshore trust
Individuals
Owning a property in one’s own name is the simplest and easi-
est understood option. And nowadays is also in many ways no
less tax-efficient than the other options considered below. The
tax implications are:
SDLT
The rates are as per Table A below. An additional 3% is payable
where the individual already owns at least one other property
which may be anywhere in the world.
ABBREVIATIONS & DEFINITIONS
Stamp Duty Land Tax - SDLT
Payable by purchaser on acquisition
Income Tax - IT
Payable by landlord on rent less expenses
Annual Tax on Enveloped Dwellings - ATED
Payable by corporate landlords annually
Capital Gains Tax - CGT
Payable by seller on disposal
Inheritance Tax - IHT
Estate Duty and Donations Tax rolled into one -
payable on death or on certain gifts
price, related costs and improvements. Higher rate applies to
that part of the gain which takes the taxpayer above the 20% IT
band, so where taxable income and gains exceed £45,000. There
is an annual exemption of the first £11,300 of gain(s).
IHT
Payable by the deceased estate of a non-resident at 40% of net
UK assets, with the first £325,000 being tax-free. This “nil rate
band” will over the next 4 years be increased to £500,000 where
the property was the deceased’s main home and is left to chil-
dren or grandchildren. The existence of a mortgage reduces the
amount subject to IHT.
Married Couples, Including Civil Partnerships
IT
The rates are as per Table B below. Relevant expenses may be
deducted from rents before computing the taxable amount.
Two recent changes to such expenses include replacement of
the previous wear and tear allowance with a deduction for actual
goods purchased, and a gradual restriction on mortgage interest
affecting taxpayers in the 40% and 45% tax bands.
This produces a more favourable tax position than the above in
the following ways:
IT
Spreading net rental income between 2 taxpayers means 2 per-
sonal allowances, so £23,000 of net rentals being tax-free as-
suming the taxpayers have no other UK income.
CGT
Each taxpayer benefits from an annual CGT allowance, so the
first £22,600 of gain is tax-free. Additionally, both will probably
receive the benefit of part of the gain being taxed at the lower
(18%) CGT rate, so a doubling up on the portion of the gain
taxed at this rate.
IHT
Again, a doubling up on the nil rate band, so £650,000 (2 *
£325,000) free of IHT. Or where this was a main home, up to
£1m (2 * £500,000) IHT-free.
Limited Liabilility Partnerships (“Llp’s”)
ATED
Not applicable as relates only to corporate ownership
CGT
Payable at 18%/28% on net sales proceeds, less original purchase
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DECEMBER 2017/JANUARY 2018 SA Real Estate Investor Magazine
These are see-through for UK tax purposes. As a result, the
members are generally taxed in their own names. Members may
be individuals or corporate entities. How this applies in practice
as regards UK taxes is as follows:
SDLT
No change from the above. Exceptionally to the other taxes,